Facebook accused of squashing rivals by former antitrust official

A former top antitrust official in the Obama administration is accusing Facebook of anti-competitive behaviour in paper that argues the social network deceived users and squelched competitors to build an unassailable monopoly.

Fiona Scott Morton, the chief economist in the US Department of Justice’s antitrust division from 2011 to 2012, said in a paper released on Tuesday that Facebook had “fought for at least a decade to avoid competition on the merits in the social networks market”.

The paper, which draws on information from a 2019 report on online platforms by the UK’s antitrust regulator and was funded by Pierre Omidyar, the eBay founder, adds to the growing bipartisan scrutiny of Facebook in the US.

The social media company, founded and led by Mark Zuckerberg, has faced criticism over its stance towards free speech, questions about the vast data it has gathered about its users, and ongoing antitrust investigations by the Federal Trade Commission and US state attorneys-general.

Ms Morton, now a professor at Yale who has called for tougher antitrust enforcement, and her co-author, David Dinielli, an adviser at the Omidyar Network, Mr Omidyar’s investment group, argue in the paper that the current social network market is “stagnant” and overwhelmingly dominated by Facebook.

“Without antitrust or regulatory intervention, it is unlikely that anything is going to change,” they write. “Facebook can collect monopoly rents, manage the flow of information to most of the nation, and engage in virtually unlimited surveillance into the foreseeable future.”

“It’s like having the old AT&T regulated monopoly back again. Only it’s not regulated,” Ms Morton told the Financial Times, referring to the telephone monopoly AT&T held until the US government broke up the company in the 1980s.

Though the paper relies on information in the UK Competition and Markets Authority’s 2019 interim study of online platforms and digital advertising, Ms Morton and Mr Dinielli suggest the facts in the US market would not differ greatly. 

A Facebook spokesperson declined to comment on the paper ahead of its publication.

In a submission to the CMA earlier this year, the company said it operated in markets where “consumer preferences change all the time”, adding that it was committed “to more choice and transparency for consumers and advertisers”.

“People are ultimately the best judge of the value of a company’s products and services and if we stop innovating people will simply spend more time on other services,” Facebook said in its submission.

The paper by Ms Morton and Mr Dinielli argues that Facebook unfairly built a monopoly position by misleading its users about its data privacy policies to gain a competitive edge over other networks, snapping up rivals like Instagram and WhatsApp, and cutting off access to other competitors.

They argue that these tactics allowed Facebook to reach a tipping point where it became a dominant social network because so many people were already on it, and subsequently ensured that other companies could not replicate its success.

Ms Morton said the dynamic in social networking, where websites become more appealing as more people join, gives incumbents like Facebook an added incentive to squash or acquire competitors before they gain too much momentum.

If Facebook had not acquired WhatsApp and Instagram, she said: “There would be a chance that the market would tip away from Facebook to one of those other platforms.”

The paper is the second from Ms Morton and Mr Dinielli that looks at Big Tech. Last month, they set out a possible case against Alphabet, the parent company of Google, in a similar paper.

Big tech companies have come under heavy pressure for possible competition violations in recent years after a long period where regulators generally viewed their conduct and acquisitions favourably.

Companies such as Facebook and Google generally do not charge users for their services, while Amazon, another focus of antitrust scrutiny, has been viewed as driving down prices in the markets in which it operates.

Their growing power — all five of the most valuable US public companies are tech companies — has forced a rethink, however. The DoJ, as well as the FTC, has been investigating the technology sector, while Republican and Democratic lawmakers are looking at possible new legislation.

The questions have gained political salience as President Donald Trump and his conservative allies have claimed social media platforms like Facebook and Google’s YouTube are censoring their views, while liberals have attacked those same platforms for failing to do enough moderation.

“Recent events underscore what we might be missing, as politicians as well as members of the polity decry the power of just a few internet platforms in shaping the democratic discourse on issues ranging from voting rights protection to police-involved violence to the pandemic,” argue Ms Morton and Mr Dinielli.

If there were many networks competing, they conclude, “users would be able to depart from a platform that did not adhere to their standard of quality or values. But this world with choice requires Facebook to be compelled to compete.”

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