Lawmakers want to break up Facebook, but experts say restoring competition through regulation should be the goal
- New York Attorney General
Letitia Jamessaid a
- Insider spoke to three experts who explained what a breakup might look like.
- They said restoring competition through regulation should be the ultimate goal.
Last week, New York Attorney General Letitia James, who is leading 48 other attorneys general in suing Facebook for illegally stifling competition, told Bloomberg Businessweek that she's considering a breakup of the tech giant as "Facebook's monopoly hurts consumers, it hurts the marketplace, it hurts advertisers." One method, she said, would be to wind down its acquisitions of
The Federal Trade Commission, which helped in allowing both of Facebook's acquisitions, filed a similar lawsuit last year in the hopes of breaking up the company for its "illegal monopolization." The FTC said it is challenging both the company's acquisitions and its conduct.
Here's what three
What it would take to 'dismantle the fortress' Facebook built
A Facebook breakup would initiate more competition in the social media market, which would be good for users, according to Harry First, a law professor at New York University.
"The primary beneficiary of competition is supposed to be consumers. We're supposed to get more of the kinds of things we want and prefer," said First, who previously served as chief of the Antitrust Bureau for New York's Office of the Attorney General.
First said the "remedy has to be tailored to the wrong" in cases like this, where the company is accused of maintaining a monopoly through certain actions. If the wrong is that the company has engaged in exclusionary behaviors, a court might remedy the problem by telling Facebook to stop those behaviors.
On the other hand, "if it's the acquisitions that built up the moat around Facebook, then you have a plausible claim that you should dismantle the fortress," First said.
A dismantling, he said, could take various forms. For example, a judge could tell Facebook to unwind its acquisitions of Instagram and WhatsApp. This could be difficult, considering the company has worked to heavily integrate the two platforms into its business, First said. Another idea could be to split the company right in half, and have two competing operations.
In a scenario where a judge orders Facebook to unwind its acquisitions of WhatsApp and Instagram, the details of the unwinding would be important in preventing the anticompetitive conduct, said Charlotte Slaiman, the competition policy director and lead antitrust expert at Public Knowledge.
Overlapping aspects of the social media sites, such as the advertising business and coding, are shared between platforms. "The question of what parts of that backend would be split is going to be really important to how successful the remedy is to fixing the anticompetitive conduct," Slaiman said.
According to First, "The guiding star is you do enough of what you need to do to restore competition in the marketplace, and that is informed by what the plaintiffs show at trial that harmed competition."
Competition could 'push Facebook to be a better company'
Another antitrust expert, R. Mark McCareins, the co-director of the JD/MBA program at the J.L. Kellogg Graduate School of Management at Northwestern University, said, "We're a long way off from talking about what a breakup would look like."
With regard to James' statement that a breakup is "on the table," McCareins said, "Are we talking about her table? It takes two to tango." He added that he sees little evidence that Facebook would come to the table and say "mea culpa," a Latin phrase which indicates admitting to fault.
The creation of a monopoly, McCareins clarified, is not illegal. Rather, it's using monopoly power in an exclusionary way to hurt whatever competition is left. According to law, he said, "If you succeed through superior skill or business acumen, and your entity becomes bigger and better and stronger because you have built the better mousetrap, that is not illegal."
He said when monopolies work to hurt competition, they will often use killer acquisitions, in which they over-pay to acquire a competing business and then kill the product. Facebook, he said, has not done that with Instagram and WhatsApp, but rather spent money to improve and integrate the products into its business.
McCareins said he finds it "somewhat offensive" that Facebook's acquisitions are being questioned years after they were already reviewed by the federal government prior to approval.
"It's very troubling you can do an M&A deal and then the government blesses you and you do too good of a job integrating the assets and become too powerful, and years later someone says, 'We shouldn't have let that go through.'"
Slaiman of Public Knowledge, on the other hand, said a breakup might not even be enough to restore competition in the marketplace. Increased federal regulation of digital marketplaces is needed as well.
A breakup, combined with regulation, would promote real competition in social media and help to address ongoing user issues in the space, such as privacy, harassment, and misinformation.
"Having that space be more open to new ideas to be successful and having companies figure out what consumers want and actually do it would make a huge difference in our lives," she said, adding that, "It's possible that competition would push Facebook to be a better company."
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