January 4, 2021 | Article

Facebook was recently hit with lawsuits by the Federal Trade Commission and attorneys general from numerous states. The government plaintiffs allege that Facebook engaged in anti-competitive behavior in the digital marketplace and are seeking a permanent injunction that could require Facebook to divest assets, among other remedies. The sought injunction includes a rollback of Facebook’s acquisition of both Instagram and WhatsApp. This article examines some of the many threshold questions that will need to be answered in the resulting antitrust analyses of these cases.

First and foremost in answering antitrust questions of market power and structure is defining the relevant market. Generally speaking, the broader the relevant market, the less likely the determination of market power. For social networking, an analysis of the relevant market will require an analysis regarding what interactive websites and software platforms where user content is generated and shared. Defining a social networking market will therefore consider user usage, advertiser and user substitution patterns, and competing features across a range of internet and mobile products.

A next question that an antitrust analysis of the Facebook cases must answer is, having defined the relevant market, how should the market share be measured. For instance, one approach is to measure the market share using the activity of user accounts. For example, monthly active users (MAU) is a popular performance indicator that reflects the number of unique users who visit a site within a month. According to Facebook’s 2019 10-K, Facebook monthly active users were 2.5 billion as of December 31, 2019. Alternatively, market share could be measured using advertising revenues. It was reported in Facebook’s 2019 10-K that its advertising revenue was $69.66 billion. Either measurement will place Facebook as the market leader in social networking.

Finally, any antitrust analysis of social networking must account for the fact that the social networking market is two-sided because it serves two groups of customers—users and advertisers—via the same platform. On two-sided markets, the U.S. Supreme Court’s 2018 decision in Ohio v. American Express Co. included a landmark ruling that “evidence of a price increase on one side of a two-sided transaction platform cannot by itself demonstrate an anticompetitive exercise of market power.” However, because users access Facebook for free, the threshold question is whether it is sufficient to analyze the prices paid by advertisers even though the social networking market is two-sided.

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