Web Excursions 2021-09-05

Regulators and Reality

  • FTC’s new attempt to define Facebook’s market of “personal social networking services”

    • Personal social networking services are a unique and distinct type of online service.

    • Three key elements distinguish personal social networking services from other forms of online services provided to users.

      • built on a social graph

      • include features that many users regularly employ to interact with personal connections and share their personal experiences in a shared social space

      • include features that allow users to find and connect with other users, to make it easier for each user to build and expand their set of personal connections

  • There are two major problems with this argument:

    • the FTC’s own definitions, reasonably understood, don’t reflect reality,

    • the definitions themselves have no relation to the actual market for online services.

    • WhatsApp is a mobile messaging service. So how is Facebook acquiring it illegal?

    • completely ignores what the product actually does.

    • any definition that says that Instagram is like Facebook but is not like TikTok is ridiculous.

      • Both let you connect with people you know,

      • but both are primarily focused on broadcast-follow dynamics, not interpersonal communication

  • everything listed above is a non-rivalrous digital service with zero marginal costs and zero transactional costs;

    • users can and do use all of them at the same time.

    • Indeed, the fact that all of these services can and do exist for the same users at the same time

      • makes the case that Facebook’s market is in fact phenomenally competitive.

  • the only rivalrous good in digital services is consumer time and attention

    • It is almost as if the agency expects the Court to simply nod to the conventional wisdom that Facebook is a monopolist.

    • whatever it may mean to the public, “monopoly power” is a term of art under federal law with a precise economic meaning:

      • the power to profitably raise prices or exclude competition in a properly defined market.

  • Digital advertising inventory on large platforms like Facebook is sold through an auction:

    • advertisers bid for impressions, the highest bidder wins, and,

    • depending on the auction design used, either the second-highest (in some flavor of a second-price auction, such as the Vickrey-Clarke-Groves auction design that Facebook employs) or the highest (in a first-price auction) bid sets the price for the placement.

    • Most modern, sophisticated ad platforms allow advertisers to bid against conversions — purchases, registrations, etc. —

      • versus simply bidding for an impression, and

    • the ad platforms use campaign performance

      • to throttle delivery based on calculated click and conversion probabilities for any given user

  • the last two years have been an eye-opening experience about capacity and capability.

  • If the powers that be decide that the company needs new kinds of regulation,

    • the answer should be new laws,

    • not redefining antitrust to be about the specific implementation of a non-rivalrous digital service

  • The appropriate response to this challenge is to reject a top-down approach conducted via regulators

    • with less capacity and greater encumbrances

  • you can no longer plausibly argue that Facebook has any sort of monopoly power;

    • look no further than recent tech earnings,

    • where the prevailing story was how company after advertising-supported company was absolutely crushing it,

    • in stark contrast to six years ago when Facebook really did look unstoppable.

    • The market worked.