Macroeconomics

Student Paper

U.S. and States Say Facebook Illegally Crushed Competition - written by Cecilia Kang and Mike

Isaac

Facebook is Evil: Change my Mind.

The article I chose to analyze is Called U.S and States Say Facebook Illegally Crushed

Competition. The article is about how the Federal Trade Commission and more than 40 states

have accused Facebook of participating in anti competitive practices. The article talks about the

separate lawsuits that have been filed against Facebook for the “illegal” acquisition of

Instagram and Whatsapp. It describes how the purchasing of these companies constitutes

anticompetitive practices. The article also dives into other large tech companies like Apple,

Google, and Amazon, and describes how they are also becoming targets of antitrust laws. The

article describes why the purchasing of completive companies is an anti competitive practice. It

talks about how Facebook uses threats in order to purchase other companies, or to get them to

be less competitive. Towards the end of the article the author uses direct quotes to establish

how representatives from Washington feel about Facebook and its practices. The article

finishes on how Mark Zuckerberg has responded to the accusations, and how other large

Competitive tech firms feel about Facebook’s practices.

The article itself was well written. The article is not too long, and it is also not too short.

It is easy to follow and understand. It is written in a way that the everyday layman can

understand it. It’s not too technical. The article jumped around slightly. It wasn’t as straight

forward as it could have been, but it was still easy to follow. It is easy to tell the article was

written as an informative piece and not a persuasive piece. I feel like the article is not very

opinion biased. The author didn’t input much of his opinion on the piece. You can easily tell

which the direction the article tended to lean toward. It was critical of Facebook and the author

didn’t do much to defend Facebook. You can tell this by the author’s use of quotes. All of the

quotes used by the author in this article are critical of Facebook. The author failed to include

any quotes that defended Facebook’s position. If the article has any biased it is due the fact

that the article seems very one-sided against Facebook, but that is the point of the article. The

article is an informative piece about how Facebook has been accused of anti competitive

practices. It would probably contradict the main point of the article to include information that

favored Facebook.

I tend to agree with most of what the article had to say. I especially agree with the idea

that Facebook is participating in anti competitive practices. This is especially noticeable when

Facebook does things like; buying other companies so it does not have to compete with them;

or threatening software developers to not develop software that would compete with

Facebook’s. I think this is text-book anti competitive behavior.

The part of the article I don’t wholly agree with is how it classifies Facebook as a

monopoly. The definition of a monopoly, according to our textbook is, “a firm is a monopoly if it

is the sole seller of its product and if its product does not have any close substitutes.” It is this

definition that I have a problem with. Facebook does not really have a product. It sells

advertisements and information, but this is not Facebook’s primary function. Facebook does

not fit the definition of a monopoly very well. It also doesn’t have the same barriers to entry as

other types of companies do. I believe if the definition of a monopoly was slightly adjusted to

tailor these kinds of tech companies, then Facebook could absolutely be considered a

monopoly. Facebook definitely exhibits monopolistic behaviors. This is the main part of the

article that I can’t fully get behind.

I believe this article covers a very important topic, especially in terms of economics, the

topic of competition in the markets. As we learned from our textbook, competition is a very

important part of economics. Competitive markets achieve efficient outcomes. Economic

efficiency describes how resources are used optimally to benefit society as a whole. A

monopoly market describes a completely different effect. A monopoly market leads to a

deadweight loss to society. Essentially things cost more than they should, and more than they

would have, had there been competition. This doesn’t benefit society at all.

This leads me to the social and civic responsibilities we have as members of

society. Social responsibility is the responsibility every one of us has, to better society with our

actions. It is our civic responsibilities that oblige us to protect society. By participating in a

monopoly we have failed in our social and civic responsibilities. This is because monopolies

have a negative impact on society. By learning about the economic practices that are harmful to

society we can better fulfill both our civic and social responsibilities.

Citations

Mankiw, N. G. (2021). Principles of Economics. 9th Edition. Boston, MA: Cengage.

Article

WASHINGTON — The Federal Trade Commission and more than 40 states accused Facebook on Wednesday of buying up its rivals to illegally squash competition, and they called for the deals to be unwound, escalating regulators’ battle against the biggest tech companies in a way that could remake the social media industry.

Federal and state regulators of both parties, who have investigated the company for over 18 months, said in separate lawsuits that Facebook’s purchases, especially Instagram for $1 billion in 2012 and WhatsApp for $19 billion two years later, eliminated competition that could have one day challenged the company’s dominance.

Since those deals, Instagram and WhatsApp have skyrocketed in popularity, giving Facebook control over three of the world’s most popular social media and messaging apps. The applications have helped catapult Facebook from a company started in a college dorm room 16 years ago to an internet powerhouse valued at more than $800 billion.

The lawsuits, filed in the U.S. District Court for the District of Columbia, underscore the growing bipartisan and international tsunami against Big Tech. Lawmakers and regulators have zeroed in on the grip that Facebook, Google, Amazon and Apple maintain on commerce, electronics, social networking, search and online advertising, remaking the nation’s economy.

President Trump has argued repeatedly that the tech giants have too much power and influence, and allies of President-elect Joseph R. Biden Jr. make similar complaints. The federal case against Facebook is widely expected to continue under Mr. Biden’s administration.

The investigations already led to a lawsuit against Google, brought by the Justice Department two months ago, that accuses the search giant of illegally protecting a monopoly. Prosecutors in that case, though, stopped short of demanding that Google

break off any parts of its business. At least one more suit against Google, by both Republican and Democratic officials, is expected by the end of the year. In Europe, regulators are proposing tougher laws against the industry and have issued billions of dollars in penalties for the violation of competition laws.

Facebook, the prosecutors said Wednesday, should break off Instagram and WhatsApp, and they said new restrictions should apply to the company on future deals. Those are some of the most severe penalties regulators can demand. Facebook said it planned to vigorously defend itself against the accusations.

“For nearly a decade, Facebook has used its dominance and monopoly power to crush smaller rivals and snuff out competition, all at the expense of everyday users,” said Attorney General Letitia James of New York, a Democrat who led the multistate investigation into the company in parallel with the federal agency, which is overseen by a Republican.

Image

Joe Simons, chairman of the Federal Trade Commission, which has been investigating Facebook since last year. Credit...Anna Moneymaker/The New York Times The lawsuits against Facebook will set off a long legal battle. The company has long denied any illegal anticompetitive behavior and has a deep well of money to put toward its defense. Few major antitrust cases have centered on mergers approved years earlier. The F.T.C. did not block Facebook’s deals for Instagram and WhatsApp during the Obama administration.

If the prosecutors succeed, the cases could remake the company, which has experienced only unfettered growth. Mark Zuckerberg, Facebook’s chief executive, has described a breakup of the company as an “existential” threat. The company’s stock fell 2 percent, to $277.70 a share, after the lawsuits were announced.

The case is also being widely watched as a gauge for future mergers within the technology industry, which have continued to boom during the pandemic. Last month, Facebook said it was buying Kustomer, a customer relationship management start-up, for close to $1 billion.

Facebook said the regulators had ignored important history.

“The most important fact in this case, which the commission does not mention in its 53- page complaint, is that it cleared these acquisitions years ago,” Jennifer Newstead, Facebook’s general counsel, said in a statement. “The government now wants a do-over, sending a chilling warning to American business that no sale is ever final.”

The company has also argued in the past that the market for social media remained competitive. Executives have pointed to the skyrocketing growth of TikTok, the Chinese short-video sharing app, and new growth in Parler, a social media firm popular among conservatives, as evidence that Facebook doesn’t have a lock on social networking.

The suit against Facebook shows how important the company has become for how Americans connect to one another. Its namesake product swelled to hundreds of millions of users in just a few short years. But by 2011, the landscape began to change as mobile phones came equipped with capable cameras, and posting photos to social networks grew increasingly popular.

That led to the rise of a competitive threat to Facebook: Instagram. The photo-sharing site, founded in 2010, saw early explosive growth as a company that was native to the smartphone, perfectly timed for mass adoption as waves of consumers gravitated away from desktop devices and toward the mobile computers in their pockets.

The F.T.C. said it found that Mr. Zuckerberg “recognized Instagram as a vibrant and innovative personal social network and an existential threat to Facebook’s monopoly power.”

But instead of continuing to compete with its own photo-sharing project, Facebook chose to buy its rival. The company repeated the practice with WhatsApp, which was a viable competitor to its own messaging system.

The agency also claims that Facebook maintained its dominance by threatening to cut off third-party software developers from plugging into the social network if they made competing products.

“Our aim,” said Ian Conner, who oversees antitrust enforcement at the agency, “is to roll back Facebook’s anticompetitive conduct and restore competition so that innovation and free competition can thrive.”

The lawsuits set off a chorus of bipartisan support on Capitol Hill.

“Facebook has crushed competition by breaking the law,” Representative Ken Buck, a Republican of Colorado and member of the House judiciary committee, wrote on Twitter. “Big Tech’s reckoning has just begun.”

Representative David Cicilline, a Rhode Island Democrat who led an investigation into the big tech companies, said: “Facebook has broken the law. It must be broken up.”

He added, “This marks a major step in our ongoing work to bring the tech industry’s monopoly moment to an end.”

Federal regulators began looking into Amazon, Apple, Facebook and Google in June 2019, in a sweeping effort to find anticompetitive practices among the tech platforms. States started to investigate not long after.

Cases around Google and Facebook, two companies with clear dominance in their markets of search, social media and online advertising, took shape faster than those against the other companies. Google had been the subject of a search antitrust investigation that closed at the F.T.C. in 2013 without a lawsuit but created a trove of information. Facebook’s case quickly coalesced around its prior mergers, which regulators were able to investigate because of its past investigations into those acquisitions, some people close to the investigations said.

The F.T.C. was split on its decision to pursue the lawsuit, with its chairman, Joseph Simons, a Republican appointed by Mr. Trump, and the two Democratic commissioners joined in their vote. The two remaining Republican commissioners voted against the lawsuit.

The state suit was signed by attorneys general from 46 states and the District of Columbia and Guam. Georgia, South Dakota, Alabama and South Carolina did not join the case.

There is a history of states going after large tech companies. In the landmark antitrust suit against Microsoft two decades ago, state attorneys general played a crucial role in pushing the case through years of litigation.

Several Facebook rivals, including Snap, came forward to present evidence of what they said was anticompetitive behavior. Mr. Zuckerberg was interviewed for the federal investigation, and prosecutors collected many of his communications to Facebook employees, investors and the leaders of the rivals he bought and tried to buy.

In a hearing before the House judiciary committee last July, Mr. Zuckerberg was confronted with emails from around the time of the acquisition of Instagram and WhatsApp that showed the Facebook founder saw the companies as competition and potentially a threat. Mr. Zuckerberg said that the acquisitions have not reduced competition and that the emails were taken out of context.

The agency and states said the purchases ended up giving Facebook data on users that fed into its business of behavioral advertising, buttressing its monopoly.

“Facebook has coupled its acquisition strategy with exclusionary tactics that snuffed out competitive threats,” the states said in their suit, “and sent the message to technology firms that, in the words of one participant, if you stepped into Facebook’s turf or resisted pressure to sell, Zuckerberg would go into ‘destroy mode,’ subjecting your business to the ‘wrath of Mark.’”