Identifying the Market In the Facebook Antitrust Case

By: Herbert Hovenkamp (ProMarket)

In late 2020, the Federal Trade Commission brought an antitrust suit accusing Facebook of monopolization. Every antitrust case claiming an unlawful monopoly must identify a “market” that the defendant is monopolizing. Past defendants often produced a single, readily identifiable product such as aluminum ingot, cellophane, or Intel-based computer operating systems. Often, parties dispute the boundaries of these markets. For example, should the cellophane market be broadened to include wax paper and tin foil? Or should the operating system market in Microsoft be broadened to include Apple’s operating system?

Facebook has generated a different kind of dispute, however, which is that the grouping of products it offers is not a “market” at all. A fundamental proposition of economics since the nineteenth century is that markets are made up of close substitutes. Competition occurs inside a market because it defines the range of a customer’s choices. For example, we say that three gasoline stations in a two-block area are in the same market. Customers can choose among them, so they must compete for that customer’s business. A station fifty miles away is not in the same market if it is not a realistic option, nor is a grocer that is nearby but does not sell gasoline.

The FTC claims that Facebook monopolizes a market for “personal social networking services.” That includes services that are quite dissimilar, however. For example, Facebook offers general messaging, two-party chatting, posting of photographs and videos, discussion boards, a marketplace and digital advertising, and even a kind of dating platform. Facebook moved to dismiss the case by stating that the FTC “has not alleged a plausible relevant market.”  A similar issue is likely to arise in the Google antitrust case, as well as a potential future case against Amazon. To date, the lawsuits against Apple have focused mainly on its control of app sales through its Appstore.

So what binds Facebook’s diverse assembly of products into a “market”? Facebook’s individual services are clearly not close substitutes for one another. Further, many firms offer individual services that compete with one of Facebook’s services. For many of these, Facebook is not the biggest. For example, it is not the biggest messaging app, platform for hosting photos or videos, or even digital advertising platform. This is also true of Amazon, which has less-than-dominant market shares in most of the individual products that it sells, save ebooks….