The End of the Antitrust Case Against Facebook?

SMITH BRAIN TRUST – Facebook isn’t going to be broken up just now. In a stunning ruling this week, a federal judge dismissed antitrust lawsuits brought against the social media behemoth by the Federal Trade Commission and some 46 states.

“My initial reaction was surprise,” says Maryland Smith’s David Kass, who as a former senior antitrust economist at the FTC, had been watching the case closely. “But I agree with the ruling of the judge. The FTC did not, first of all, provide an adequate or universally accepted definition of a personal social networking service. Second, the FTC, in its case, did not define what the relevant market was.”

Those failings, he says, left the one of federal government’s key arguments – the notion that Facebook holds a monopoly over social networking – in the dust.

“I was an antitrust economist with the FTC for seven years, and the vast majority of the cases I was involved with required us to define the relevant market – the relevant product market and the relevant geographic market,” he says. In the case of Facebook, the geographic market is the United States. The product market is more vague.

“How could you argue that Facebook has a 60% market share in a market that you can’t even define, without providing any backup data, apparently, that shows what the market share was in each of the past 10 years.  At the very least, it is a number that is poorly supported,” says Kass, a clinical professor of finance at the University of Maryland’s Robert H. Smith School of Business.

With a wider aperture, Kass says, the FTC and the states’ attorneys general did not clearly establish what harm Facebook was posing to consumers.

“The purpose of the antitrust laws is to protect consumers,” Kass says, “and usually the measure of harm to consumers in the face of a monopoly or an oligopoly is an economic measure – higher prices, or prices that are higher than they would be in a purely competitive market.”

But Facebook, and the company’s Instagram and WhatsApp services, are free. “Right now it is not clear that harm is being created by the size of the large tech firms,” says Kass. “Facebook is popular, here in the United States and elsewhere around the world, one can argue, because it has a product that consumers like. And those consumers are voluntarily joining Facebook – for free – and spending time on the network.”

The FTC and the states, in their case, argued that Facebook’s dominance created an anticompetitive market for other social upstarts, but, Kass says, “That argument, on its surface, seems very weak.”

“The thrust of the antitrust laws – primarily the century-old Clayton Act and the Sherman Act, among others – is to protect consumers, not to protect competitors. And that’s a very important distinction,” he says.

The rulings were seen as a major setback for lawmakers who had vowed to rein in some of the country’s tech giants, amid concerns about consumer privacy, among other matters. And Kass acknowledged that those concerns are legitimate.

“But those concerns can and should be addressed through regulation,” he says. “You don’t need antitrust laws breaking up the company to protect the privacy of consumers. It’s a different problem with a different solution. That does indeed need to be addressed, but not through the heavy hand of antitrust laws and potential remedies of breaking up the company.”

According to the ruling, the state attorneys general and the FTC could submit their case again within 30 days, adding detail to their arguments, but Kass is skeptical about whether they will. “I don’t know how much you can revise in 30 days,” he says. “But they may do it.”