Campaign trails converge with economic realities to recognize the need to manage mega-mergers
As reported by the New York Times, the FTC has been making initial efforts to enjoin the marketing and social media firm Facebook from technically integrating the communications platforms it acquired through merger, enabling regulators or Congress an opportunity to revisit the appropriateness of these mergers. The products include WhatsApp, Instagram and Facebook Messenger. Together, these services represent three of the largest messaging networks, services used by 2.6 billion users. Chris Hughes, a Facebook founder, Tim Wu of Columbia Law School, Scott Hemphill of NYU Law School, and many of the democratic presidential candidates have been calling for regulatory action or breaking up Facebook precisely because of its de facto monopolization of messaging.
Facebook’s effort to entangle the services highlights that is not yet too late to disentangle the separate, and directly competitive, services. It harkens back to the antitrust concerns regarding Microsoft’s integration of Internet Explorer and the use of the web browser to extend Microsoft’s footprint in desktops to the Internet. An FTC action could be the first salvo in 2020’s App Wars.
The efforts to review Facebook reflect its version of Alphabet/Google’s use of acquisition to thwart legitimate competition. In each of these cases, the companies are enhancing their ability to maintain the high and increasing cost of advertising by eliminating fragmentation of the advertising markets. The consequence is reduced competition, poor service, and a lack of market consequences to content fraud: false advertising, political misinformation, click fraud and reposts, clickbait headlines, deepfakes, permitted hate speech, and the rest.
Each of the forms of content fraud adds churn to the online space – creating more clicks to show advertisers the number of consumers seeing the ads. If there were real competition for advertising, then the platforms offering less content fraud would be able to sell their advertising at a higher rate – since the ads would be reaching real people. But with Facebook and Google dominating the market, then neither company need do any more than the other company.
The actions by Facebook and Google to buy emerging competitors ensures the duopoly continues. In the absence of any market forces to discipline the companies, only regulation is left. The general public does not see how the price of advertising impacts the price of services, and the low inflation further hides the rising profitability of Facebook and Google at the expense of the distributors and retailers that advertise. But the scale of these actions is leading to regulatory attention. Stopping the integration of the Facebook networking apps enables regulators some time to address the more fundamental issues.