Facebook Inc. (NASDAQ: FB) took another hit this week in its battle against antitrust allegations. A former Obama administration official argues in a new paper that the social media giant used deception to build a monopoly and squash competitors.
Some critics say Facebook, which acquired WhatsApp and Instagram, has gotten too big and controls too much of the social media market. The Menlo Park, California-based tech giant claims 2.6 billion users worldwide.
Anti-tech sentiment has been growing on both sides of the political aisle in the last couple of years. Besides Facebook, politicians and regulators have targeted Alphabet (NASDAQ: GOOGL), Amazon.com (NASDAQ: AMZN) and Apple (NASDAQ: AAPL).
The Latest Blow
A paper released Tuesday argues that Facebook “fought for at least a decade to avoid competition on the merits in the social networks market.” One of the authors, Fiona Scott Morton, was chief economist in the U.S. Department of Justice Antitrust Division under President Obama.
Now a professor at Yale University, Morton argues that because of its dominance, Facebook controls the flow of information to consumers and has unchecked power to monitor user behavior. By buying rivals WhatsApp and Instagram, Facebook essentially pre-empted the development of competing platforms, the paper argues.
“It’s like having the old AT&T regulated monopoly back again,” Morton told the Financial Times. “Only it’s not regulated.”
In one of the most famous antitrust cases, the government forced AT&T to break up in 1984. Prior to the breakup, Ma Bell controlled everything from your home phone to local and long-distance calling. Today’s AT&T is a descendant of that breakup, but it is just one of many players in a very competitive telecommunications space.
Facebook didn’t comment on the new paper to the Financial Times. But in the past, the company has argued that the social media space remains highly competitive. The company has also said that it has worked to address privacy concerns.
Antitrust Push Gains Steam
“After years of threats, state and federal leaders have embarked on the kind of inquiries that could result in dramatic changes to the way Amazon, Facebook and Google operate, including punishments that could break apart those companies,” The Washington Post reported this week.
The Justice Department, the Federal Trade Commission and nearly all of the state attorneys general have investigations of the tech giants underway. For example, 46 states and territories joined New York State’s antitrust investigation into Facebook. The company “may have put consumer data at risk, reduced the quality of consumers’ choices, and increased the price of advertising,” New York Attorney General Letitia James said last fall.
Action against Google seems imminent. Media reports on Friday indicated that the Justice Department and state attorneys general are close to filing a lawsuit calling for the breakup of Google’s ad-serving business. Google has argued that the digital advertising space is competitive. The company says it is cooperating with all investigations.
Last week, Forbes noted that antitrust fines and new regulations could cost Google up to $150 billion, and Facebook up to $70 billion. The magazine based its calculation on a March Morningstar report which suggested a potential 11% hit to Facebook’s shares should the most extreme antitrust measures become reality.
Shares of Facebook closed at $236.73 on Wednesday, near its 52-week high of $241.21.
To fight back against the allegations, the tech giants are aggressively courting Washington. The Washington Post said Facebook, Amazon and Alphabet spent $11 million on lobbying in the first three months of 2020.
The newspaper said the companies are actually spending a lot more by funding various advocacy groups that oppose more regulations. Those expenditures are not disclosed. Earlier this year, it was reported that Facebook was backing American Edge, a new anti-regulation advocate.
President Trump has also criticized the tech companies, arguing that they suppress conservative voices. After Twitter fact-checked and labeled some of his controversial posts, the president issued an executive order aimed at social-media companies.
It calls for the Federal Trade Commission to review section 230 of the Communications Decency Act. That law essentially provides immunity to tech companies from being sued over user content on their platforms.
Legal analysts said the executive order lacks teeth. But it could open Twitter and others up to costly lawsuits. And it ensures that the tech giants will remain part of the conversation during this election year.
For Facebook’s part, CEO Mark Zuckerberg has tried to stay out of the fray. Unlike Twitter, Facebook has declined to label questionable posts by the president.