The Federal Trade Commission (FTC) has lost its antitrust lawsuit against Meta Platforms, Inc., the parent company of Facebook and Instagram. In a detailed memorandum opinion, Judge James E. Boasberg of the U.S. District Court for the District of Columbia ruled that the FTC failed to prove Meta held a monopoly in the relevant market. The case, which has spanned five years, centered on the FTC’s claim that Meta stifled competition by acquiring Instagram and WhatsApp.
The FTC’s Argument: A Narrow View of Social Networking
The FTC argued that Meta held a monopoly in the “personal social networking” (PSN) market. According to the agency, this market included only Facebook, Instagram, Snapchat, and the lesser-known MeWe. The FTC contended that Meta, facing competition from Instagram and WhatsApp, maintained its dominance not by outcompeting these rivals but by acquiring them. This, the FTC claimed, violated Section 2 of the Sherman Act, which prohibits monopolization.
Meta’s Defense: A Broader View of Social Media
Meta, on the other hand, argued that the PSN market, if it ever existed as a separate entity, no longer did. The company asserted that it competes in the broader social media landscape, which, at a minimum, includes TikTok and YouTube. Meta pointed out that adding these two platforms to the relevant market significantly reduced its market share, negating any claim of a monopoly. Furthermore, Meta defended its acquisitions as beneficial to consumers.
The Court’s Analysis: Defining the Market
The court’s core task was to define the relevant product market. This involved determining the set of all alternatives that consumers consider “reasonably interchangeable” for the same purposes. The court used the “hypothetical-monopolist test,” asking whether a hypothetical monopolist controlling all the products in question could profitably raise prices. Since the products are free, the court considered whether a hypothetical monopolist could make the apps significantly worse, like by adding more ads. If a price increase would be unprofitable because consumers would switch to alternatives, those alternatives belong in the market.
Empirical Evidence: Substitution Between Platforms
The court examined empirical evidence to see if consumers treat TikTok and YouTube as substitutes for Facebook and Instagram. The evidence showed a clear pattern:
* Response to TikTok: The launch of TikTok in the United States led to a significant reallocation of time away from Facebook and Instagram. Young adults, in particular, decreased their time on Facebook by about a quarter.
* Meta Study Panel: A study of almost 50,000 users showed that when users decreased time on Facebook or Instagram, they spent more time on YouTube and TikTok.
* Natural and Field Experiments: The court reviewed experiments, including a payment experiment where users were paid to reduce their Facebook and Instagram use. The results showed that the greatest share of time was diverted to YouTube and TikTok.
The court found that these experiments showed that when using Facebook and Instagram becomes more costly, users turn to TikTok, YouTube, and Snapchat. The court concluded that these apps are not merely competitors but are economically significant substitutes, preventing Meta from exercising monopoly power.
The Brown Shoe Factors: Qualitative Evidence
The court also considered the Brown Shoe factors to identify distinct product markets. The court considered the following:
1. Peculiar Characteristics and Uses: While the FTC argued that Facebook and Instagram offer a “social graph” centered around friends, the court found that TikTok and YouTube’s features are increasingly similar. All platforms increasingly use AI algorithms to show users content, and all encourage users to share content via direct messages.
2. Industry or Public Recognition: While industry participants often distinguish between different types of apps, the court found that they also recognize the competitive overlap between them. Meta itself considers TikTok and YouTube serious competitors.
3. Unique Production Facilities: The court determined that there’s not a significant difference in the technology or resources needed to create Meta’s apps compared to TikTok or YouTube. Both have similar ingredients: content and advanced algorithms.
4. Distinct Customers, Prices, and Sensitivity to Price Changes: The court found that the customers, prices, and sensitivity to price changes are not distinct. All apps are free, and users are highly sensitive to changes that make Meta’s apps less appealing.
The court concluded that the Brown Shoe factors did not support the FTC’s narrow market definition.
The “Whole Foods” Argument: A Failed Analogy
The FTC attempted to draw an analogy to *FTC v. Whole Foods Market*, arguing that even if users generally substitute between platforms, a core group of users values friend content and has no substitute, which Meta exploits. The court rejected this argument, finding that the alleged price discrimination (higher ad load) was not significant. The court also found that the evidence showed that Meta’s ad load strategy was not based on users’ valuation of friend content.
Market Share and Monopoly Power: Insufficient Evidence
The court calculated Meta’s market share, finding that even using the FTC’s narrower market definition, Meta’s share was below the threshold for monopoly power. The court emphasized that Meta’s market share is falling due to the rise of TikTok and that the competition from TikTok and YouTube prevents Meta from controlling prices or excluding competition.
The Judge’s Conclusion
Judge Boasberg concluded that the FTC failed to prove Meta holds a monopoly in the relevant market. The court found that the agency’s argument for a narrow definition of the market was not supported by the evidence, and that the broader market, including TikTok and YouTube, demonstrated significant competition.