Why Facebook Needs to be Broken Up by the FTC

Executive Summary

• The US Government brought a lawsuit against Facebook for monopolistic behavior.
• We cover one of the only articles to provide an analysis of Facebook’s monopolistic behavior.

Introduction

Recently reading about the antitrust action against Facebook, I found what seemed to be the same articles that only repeated the claims made by the US Government versus Facebook.

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The Lacking of Monopolistic Aspect Coverage

The articles that covered the US Government’s announcements did not provide their own analysis of Facebook’s monopolistic history but only repeated the quotes from the Department of Justice and local prosecutors.

However, I finally did find an article that addressed the questions I had, and this was Matt Stoller’s coverage of both the US Government’s case and Facebook’s behavior.

And in the following quote, he addressed how Facebook started degrading user privacy and increasing surveillance as soon as it had its monopoly position.

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.

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.”

The Sherman Act is a criminal statute as well as a civil statute, and while this case is civil, monopolization is criminal behavior. It’s a form of theft, of economic violence.

I was unaware of the work by Dina Srinivasan before reading Stoller’s article. However, the following quotes are both illuminating and terrifying.

The Case for Breaking Up Facebook

The fact that this century’s new communications utility is free but necessitates widespread surveillance of consumers is a paradox in a democracy. Facebook watches, monitors, and remembers what over 2 billion people do and say online. Contrary to what those in the advertising industry would regulators to think, American consumers value a state of no surveillance and have attempted to protect this aspect of their privacy since the beginning. The fact that the free market today offers no real alternative to this exchange is a reflection only of the failure of competition.

Consumers today turn from Facebook to other websites and apps and face an identical
degradation of quality across millions of sites and competitors on the advertising side of the
market. For publishers like The New York Times and others, Facebook extracts commercial
surveillance of their customers through publishers’ licenses of Facebook’s business products
(e.g., Like buttons etc.). Facebook has commoditized these publishers’ own user data, once a prized proprietary possession, for its own benefit either to sell Facebook advertising or the
advertising of a publisher’s competitors. This market structure has deteriorated the pricing power of market actors across the horizontal market and resulted in the duopoly of Facebook and Google—which account for just about the entirety of the growth in the digital advertising market against a backdrop of publishers such as BuzzFeed or The Guardian soliciting reader donations.

Interpreting Facebook’s 2011 Case with the FTC

Importantly, Facebook’s wider history may point to a larger pattern of misleading
conduct within the company. In 2011, Facebook settled charges with the Federal Trade
Commission alleging a range of false and misleading material statements made to consumers related to user privacy—all of which fell outside of the scope of Facebook’s conduct that is the focus of this Paper. For instance, the FTC complaint alleged that while Facebook’s privacy controls allowed users to restrict their information to “only friends,” Facebook was actually overriding user choice and sharing users’ information with third-parties. More recently, Facebook has come under congressional scrutiny for deceiving consumers by knowing but not disclosing to users that their data was misappropriated by political consulting firm Cambridge Analytica. When asked by Senator Kamala Harris (D-CA) if Facebook made an explicit decision to not inform users, Zuckerberg answered “yes,” and called it another “mistake.” The wider record of deceptive conduct with respect to user privacy may also be relevant to a larger case of unlawful acquisition (and even perpetuation) of monopoly power.

This video explains that Facebook is valuable if it only uses the information that users upload and give consent to Facebook to use. The value comes in tricking the user into allowing them to be tracked and surveilled across the Internet so that their other activities are also pulled into Facebook. This is what advertisers pay Facebook. Facebook also purchases data from data brokers and then correlates their data with this data broker data. Big Data is then used to violate the privacy of its users in a major way. 

Facebook’s User Satisfaction Declines

One of the features of a monopoly is that it normally provides low customer satisfaction while maintaining a high market share. The monopoly does not need to have high user or customer satisfaction because it does not have reasonable alternatives.

This is demonstrated in Facebook’s user satisfaction.

Facebook’s quality deterioration led to an interesting phenomenon—decreasing user satisfaction, despite Facebook’s continued ability to retain and grow its user base. According to the American Consumer Satisfaction Index (ASCI), social media is amongst the lowest scoring of all industries surveyed. With an industry average of, social media’s ASCI score is lower than even health insurance and airlines. Facebook, with a score of, and a trailing average of 66, has an ASCI score lower than almost every American airline—and is also lower than the average industry benchmarks of 95% of the industries covered by the ASCI study.

Conclusion

I scoured the Internet for an article that could provide more analysis for the action against Facebook than just the US Government’s filing. I want to congratulate Matt for an excellent article that got to the heart of the matter and Dina Srinivasan for her excellent 80 page paper on Facebook’s monopolistic behavior.

This article by Matt Stoller and the paper Dina Srinivasan receive our score of a 10 out of 10 for accuracy.