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Are Social Media Sites Engaging in Anti-Competitive Conduct?

| Feb 14, 2013 | Analysis

Government social media.jpg investigations of search engines and social media websites have created new questions over what constitutes anticompetitive behavior under federal antitrust laws in the digital age.

In response to complaints that Google may have manipulated its search results to promote its own services, the Federal Trade Commission (FTC) conducted a nearly two-year investigation of the company, ultimately concluding that Google did not engage in any antitrust violations, although the company agreed to change certain business practices.
Previously, the FTC has announced an interest in subjecting the “high-tech sector” to antitrust scrutiny. However, the FTC has expressed concerns that constantly evolving technology poses a challenge to defining the appropriate market for purposes of investigation. The FTC has also indicated that the “fast-moving high-tech” industry does “not fit snugly into the drawn out litigation process” in federal courts.
In light of the growing antitrust attention to online industries, including search engines like Google and social media websites such as Facebook, Professor Christopher Yoo of the University of Pennsylvania Law School recently released a paper suggesting that government antitrust scrutiny may be a “rite of passage” for successful high-tech firms.                                                
Yoo takes lessons from previous antitrust investigations in high-tech industries and seeks to clarify how current antitrust laws may be applied to social media by using the two elements of a “successful monopolization claim”—that a firm possesses market power and has engaged in exclusionary conduct. Market power is usually defined in reference to a firm’s market shares and its ability to raise prices or exclude competitors. Exclusionary conduct has been described by the Supreme Court as “the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.”
Yet when it comes to social media and other online businesses, these conventional antitrust concepts need careful scrutiny. For example, Yoo distinguishes market power from “network effects,” a phenomenon which describes when a network’s value increases as the number of its users increases. Although network effects proved decisive in a prominent 2001 antitrust case brought by the Department of Justice against Microsoft, Yoo argues that they should not be considered as a basis for market power in the social network industry because the existence of greater numbers of users does not necessarily increase the value of the service to individual users.
Yoo also indicates that Facebook users face greater organizational costs in managing an over-populated newsfeed and targeting sub-groups as their number of friends increases. As a result, users place a premium on a core group of friends irrespective of the total amount of network users. Hence, network congestion and organizational costs can offset monopolistic effects.
A social media company’s “refusal to facilitate data portability” also does not necessarily create barriers to entry that constitute exclusionary conduct, according to Yoo.  Data portability is the ability to transfer data from one social networking site to another, the lack of which potentially locks users in to maintaining their current network.  Yet the exclusivity of data can improve user experience and prevent the evasion of privacy restrictions in the social media sphere. Standardizing data would actually threaten the structure and functionality of social media systems, Yoo argues.
Yoo further observes that social networks’ enforcement of privacy restrictions, such as prohibiting the copying of user data by third-parties, is a reasonable business practice, not necessarily a barrier to entry for emerging rivals. To illustrate, Yoo cites how Facebook blocked a tool developed by Google to facilitate importing users’ friend information into Google’s own social network. According to Yoo, unless such conduct is accompanied by deception or lacks any business justification, networks like Facebook can be likened to a “natural monopoly” and shielded from antitrust enforcement.
Overall, Yoo cautions against generalizing from anticompetitive behavior in other sectors to online and social media business practices.

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