Conservative antipathy towards “Big Tech” is nothing new—and in the wake of Facebook’s decision to uphold their ban of former president Donald Trump some are calling for the Department of Justice to further their antitrust investigations.
While it is nothing new for a politician to propose legislation aimed at hurting their political opponents, the spirit of antitrust legislation is that it is meant to protect consumer welfare and ensure a competitive marketplace. It is worth exploring these claims as they apply to potential future antitrust prosecutions of social media companies like Facebook and Twitter.
The first step is understanding the economics of monopolies and the specific problem that antitrust legislation is designed to solve. In a competitive market, a business may put a price sticker on the items they sell, but the number on that sticker is limited by the customer’s ability to walk out their door and into another business that is selling the item at a lower price. Imagine a grocer decides to add $10 to the price of every item they sell. How many customers do you think would remain? Competition from other grocers limits the ability of any one person to raise their prices and remain in business.
Antitrust prosecutions are unlikely to reduce consumer harm or make the market more competitive.
This is not true in a monopoly. In a competitive market, producers compete against other producers by their willingness to sell at lower prices. In a monopoly, customers compete against customers by their willingness to pay more. The result is higher prices and less stuff.
Imagine a world where there is a monopoly on the production of automobiles. The harm isn’t the high price, it is the decreased quantity of automobiles. Individuals that would have been willing to purchase a car at the competitive price are priced out of the market once it is monopolized.
Fewer cars mean fewer people are benefiting from car ownership because those cars were never made and those purchases never occurred. This is how economists view the losses from monopolies: people want to drive places but they are unable to do so because the market structure limits the number of cars created and the resulting higher prices prevent individuals from benefiting from car ownership.
How does this apply to social media? They make money from advertising. The users are not the customers. Grandma isn’t the one writing a check to Zuck when looking at pictures of her grandkids. The people writing the check are advertisers that want to match their ads with eyeballs. In the monopoly model, the people being hurt are the advertisers! The problem is too few ads are being sold at too high a price!
This is an odd crusade for populist Republicans.
Antitrust prosecutions can be a weapon to hurt politically disfavored businesses and enrich the lawyers defending them.
Is a market competitive? The answer depends on how narrowly one defines the market. Imagine a world where there is only one producer of ice cream. Is the market competitive? If the market is defined as only ice cream, the answer is no. This is too narrow a way of thinking. We know that entire stores are filled with candy, confections, and other sugary treats. Everything that satisfies a sweet tooth is a competitor with ice cream. Fresh fruit is a competitor with ice cream. Customers can walk out the door selling ice cream and into every other bakery selling cookies, pies, and cakes.
The market for desserts and treats is highly competitive.
Social media companies make money by matching eyeballs with ads. They cannot do this without the eyeballs of their users. There may be few social media companies, but they are competing against literally all other forms of entertainment and ways that people can spend their time. Every book that has ever been written is a competitor to social media. Puppies and kittens are competitors to social media; they demand to be played with and are insistent you pay attention. Sleep is a competitor to social media, and unlike your wallet where you can spend larger amounts of money, there are only 24 hours in a day.
To keep matching ads to their users, these companies have to provide an experience that is better than the next best alternative. Every time Netflix releases a new series or someone uploads a video to YouTube, that is competition for time and eyeballs.
Antitrust prosecutions are unlikely to reduce consumer harm or make the market more competitive.
Antitrust prosecutions can be a weapon to hurt politically disfavored businesses and enrich the lawyers defending them.
The post The Case Against Antitrust: No, Facebook and Twitter Are Not Monopolies was first published by the Foundation for Economic Education, and is republished here with permission. Please support their efforts.
