When Federal Trade Commission antitrust lawsuit against Facebook was dismissed by federal judge James Boasberg in June, he gave the agency very specific instructions on how to salvage it. The problem, he wrote in his opinion, was that the FTC had not provided even the most flimsy evidence that Facebook is a monopoly, other than the vague claim that it “maintained a dominant share of the US personal social networking market (in excess of 60%).”
To return to court and proceed to the next stage of litigation, the FTC would need to provide much more specific information. Lina Khan, who was confirmed as the agency’s commissioner just two weeks before Boasberg’s ruling, had an interesting early assignment.
The FTC does not need to show that Facebook is literally the only social network to establish that it is a monopoly for legal purposes. They must demonstrate “market power.” In a nutshell, market power means that you face so little competition that you can do things that your customers dislike without losing any business. It’s one of the main reasons antitrust laws exist: if there isn’t enough competition, businesses will stop trying to please their customers and start squeezing them.
There are two methods for demonstrating market power: indirect evidence and direct evidence. In most cases, indirect evidence refers to a dominant market share. (This may seem counterintuitive, but the reason it is indirect is that being large does not prove a company is doing anything wrong—it simply raises the possibility.) The FTC provided only indirect evidence in its initial complaint, and very little of it: that feeble 60 percent statistic, which Boasberg ruled was insufficient. In contrast, the revised complaint goes into great detail about market share. According to Comscore data, Facebook has accounted for more than 80% of all time spent since 2011, as well as at least 70% of daily active users and at least 65% of monthly active users.
The clever thing about this definition is that it excludes companies with whom Facebook would like to claim competition. LinkedIn is only for business contacts; it is not for friends and family. Twitter and Pinterest are about following interests rather than connecting with people you know.
The problem with the definition is that it could be interpreted as arbitrarily narrow, with the intent of mapping only to Facebook. Boasberg noted in his opinion dismissing the case that the FTC had not named a single existing competitor in the market for personal social networking services. The agency attempts to address this issue in the revised complaint. According to the FTC, Snapchat is the biggest competitor to Facebook—and Instagram, which Facebook owns and also fits the FTC’s definition.
At first glance, this may appear strange. Snapchat is all about ephemeral photos and videos; it lacks many of the features found on Facebook. However, it satisfies all three of the FTC’s definitional criteria: It’s primarily about interacting with friends and personal contacts; you can search for people you know; and there’s (potentially) a shared social space, presumably via the Stories feature. It was also the subject of Mark Zuckerberg’s famous but ultimately unsuccessful acquisition attempts.
More broadly, the FTC points to Facebook’s ability to generate extraordinarily high profits year after year: $29 billion on only $85 billion in revenue in 2020. A fundamental idea in antitrust economics is that having large profit margins for an extended period of time should be impossible because it means there is extra money on the table. Toyota can’t simply raise its car prices because it knows people will start buying more Hondas.
While this should be enough to resurrect the lawsuit, the FTC still has a long road ahead of it. Of course, Facebook denies all of the allegations, and it will have numerous opportunities to present its side of the story in court. Getting past a motion to dismiss does not mean you will win in the end. All that can be said at this point is that the FTC has finally laid out its case theory.