The End of the Facebook Crime Spree

The U.S. Government asks to break up Facebook.

Today, 48 state attorneys general, plus Trump’s Federal Trade Commission, filed antitrust suits against Facebook.

There are two complaints, one from the states and one from the FTC. The state AG complaint is stronger, but both tell the same story. Facebook bought Instagram and WhatsApp to stop nascent competitors from challenging its monopoly power in social networking. It also used a variety of other tactics to foreclose competitors it could not buy from entering the market and challenging its dominance. Then, after it became a monopoly, it increased prices or downgraded user experiences to profit from the conspiracy it had arranged.

The narrative comes from legal scholar and former ad executive Dina Srinivasan’s remarkable 2019 paper on Facebook. In her analysis, Srinivasan showed that Facebook actually beat out MySpace by offering users a product differentiated with better privacy guarantees. But after monopolizing the market and killing its competitors, Facebook immediately started degrading the quality of the product with intrusive surveillance of its users, contra their wishes.

The complaints from enforcers mirror her argument. They claim Facebook’s anti-competitive tactics made the product worse, not just by spying on people when they wanted a product that protected their privacy, but also by increasing the number of ads people had to wade through to get to content they sought. Advertisers were harmed as well, not just with higher prices but also because Facebook putting their ads next to offensive content.

“It is better to buy than compete.”

The enforcers proved their case with internal emails showing that the company deliberately and routinely engaged in acquisitions to eliminate competition, and then eroded user privacy when users had nowhere else to go. The FTC starts off its case with one email in 2008 from Zuckerberg in which he writes, “it is better to buy than compete.”

And it’s true. These mergers were harmful to competition, intended to fortify Facebook’s control of the social media market. Here’s another example, but again, the complaints are chock full of these (as is the Antitrust Subcommittee report):

In January 2012, just three months before Facebook acquired Instagram, Facebook’s Business Development Manager Amin Zoufonoun told his colleagues that gaining better functionality in photos was “one of the most important ways we can make 15 switching costs very high for users – if we are where all users’ photos reside because the uploading (mobile and web), editing, organizing, and sharing features are best in class, will be very tough for a user to switch if they can’t take those photos and associated data/comments with them.”

Facebook was locking in its users.

And the corporation understood the value of locking in its customers, even going so far as to stop forms of intrusive surveillance when users could flee to a different product (as indeed they had fled to Facebook from MySpace). One Facebook official warned that the company should not violate user privacy while under competitive threat from Google Plus. “IF ever there was a time to AVOID controversy, it would be when the world is comparing our offerings to G+.” He then recommended that Facebook save any controversial changes “until the direct competitive comparisons begin to die down.”

The goal, in other words, was to stop users from switching by locking them into Facebook products by eliminating competitors and raising switching costs. Then, the company would show them more ads and spy on them more, in the process making the user experience worse, reducing investment and innovation in social media, and raising prices on advertisers. That’s illegal. And fortunately for the FTC and 48 state AGs, Zuckerberg and company helpfully wrote it all down in email

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