Antitrust Economics Antitrust Practices and Market Power:

ANTITRUST

Economics

Antitrust practices and market power:

Technology, social networking sites, and anti-competitive behavior

Q1.Why was/were the firm(s) investigated for antitrust behavior?

IBM, AT&T, Microsoft, Intel, Google, Twitter, and Facebook are all technology companies that have been accused of operating as de facto and de jure monopolies: in other words, of engaging in blatant violations of the Sherman Antitrust Act or of substantially limiting market competition to such a degree that a monopoly has been created and consumer choice has been limited in a negative fashion. "From an antitrust standpoint, monopoly power is the power to raise price or exclude competition. Monopoly power is not unlawful in its own right, but unless a firm is deemed to have monopoly power (or at least a dangerous probability of acquiring such power), it cannot be held liable for monopolization or attempted monopolization" and having a negative impact upon consumers (Waller 2012: 1775). This paper will specifically profile Facebook, the social networking site accused of anticompetitive behavior.

Q2.Identify some of the costs (pecuniary and nonpecuniary) associated with the antitrust behavior

Social costs include forcing people to become 'locked into' a service they do not necessarily feel provides them with the services they require. However, Facebook does not operate like a traditional company and thus not like a traditional monopoly The difficulty with proving that a company is a monopoly lies in the fact that technology companies, specifically social networking companies, have a rather amorphous characterization, in contrast to conventional definitions of what a product, industry, and company constitute. For example, Facebook is a platform for sharing a wide variety of content that can theoretically be shared on other arenas but Facebook is unique as a 'gathering place' of specific individuals, making true competition between social networking platforms less interchangeable than is immediately obvious. Starting up a social networking site to compete with Facebook is challenging given people want to be where the majority of their friends are located.

The geographic area of Facebook is also blurry, in contrast to a brick-and-mortar store. Questions of jurisdiction arise, given that Facebook has an international outreach, and there are differences between, for example, American and EU definitions of what constitutes a monopoly. Comparing Facebook's market share (national or international) with other applications such as YouTube and Twitter is problematic, given the different ways users access these applications (Ingram 2013). Traditional ways of measuring barriers to exit and entry are also questionable, given that while it is quite cheap to begin a new website, starting up a company that can gain the recognition of Facebook or any of the other major networking sites is questionable. Facebook's dominance as a social media site affects a new applications' ability to generate advertising revenue or to collect valuable information about users. Switching is extremely difficult for users once they have generated a network of social contacts in one arena (Waller 2012: 1789).

Q3.Given your research and findings, are monopolies and oligopolies (firms demonstrating power) always bad for society?

However, while Facebook has a greater market share of users than its competitors (such as, for example, Google+), users can also become members of more than one social networking site, particularly since participation on the platforms are free (Efrati 2103). Thus, the 'harms' to users are rather ambiguous vs. monopolies in other industries: there is other, albeit slightly different social networking services and by virtue of its monopolistic power, Facebook is useful in creating a conglomeration of data that is valuable for both users and advertisers. True, when Facebook was under scrutiny for potential anticompetitive practices, "it was also revealed that Facebook created a clumsy public relations campaign to plant unfavorable stories about Google in the mainstream and online media" but impacts upon users were uncertain -- even the harms to the powerful search engine Google were unclear, given that use of Google did not decline (Waller 2012: 1795). The laws created to regulate monopolies under the Sherman Antitrust act were developed long before the concept of a virtual social networking reality. Social networking sites' users interact with one another across geographical boundaries: the sites dispense a free 'product' and are dependent upon advertising revenue and aggregation of its collection of data, not upon offering a clear product or service.

Q4.Provide at least one example of a case where having a monopoly or oligopoly may actually benefit the society.

One possible argument as to Facebook being in violation of antitrust regulations is that users are 'locked in' if they want to keep the same connections. While the product Facebook dispenses is not technically a necessity, many users consider it so, given once they generate connections and followers, these users will not translate easily to other social networking sites. A possible brick-and-mortar example is that of a copier company which changed its parts and services polices to forcibly lock in long-term users to uncompetitive rates -- the longer one remains on a popular social networking site, the more 'locked in' on is, and the more the site owners can take advantage of regular users (Waller 2012: 1791). However, when a monopoly does not take advantage of users it can offer its product at substantially lower cost to users -- in the case of Facebook, its proponents note, it offers its services for free.