The End of the Facebook Crime Spree

A significant set of antitrust suits is ending the lawlessness at the heart of our economy.

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This issue will be short because I have a simple point. What Mark Zuckerberg did at Facebook is engage in systemic criminal behavior, and he was able to do so because law enforcers refused to enforce the law against the powerful. That era is over. Today, enforcers filed antitrust cases against Facebook, alleging monopolization of the social media market and asking for the company to be broken up.

Before going into depth on the case, I’m collecting some stories of Facebook’s impact, so if you’ve been helped or harmed by Facebook in a business or consumer capacity, let me know by responding to this email or by putting it in the comments.

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The Government Asks to Break Up Facebook

Today, 48 state attorneys general, plus Trump’s Federal Trade Commission, filed antitrust suits against Facebook.

There are two complaints, one from the states and one from the FTC. The state AG complaint is stronger, but both tell the same story. Facebook bought Instagram and WhatsApp to stop nascent competitors from challenging its monopoly power in social networking. It also used a variety of other tactics to foreclose competitors it could not buy from entering the market and challenging its dominance. Then, after it became a monopoly, it increased prices or downgraded user experiences to profit from the conspiracy it had arranged.

The narrative comes from legal scholar and former ad executive Dina Srinivasan’s remarkable 2019 paper on Facebook. In her analysis, Srinivasan showed that Facebook actually beat out MySpace by offering users a product differentiated with better privacy guarantees. But after monopolizing the market and killing its competitors, Facebook immediately started degrading the quality of the product with intrusive surveillance of its users, contra their wishes.

The complaints from enforcers mirror her argument. They claim Facebook’s anti-competitive tactics made the product worse, not just by spying on people when they wanted a product that protected their privacy, but also by increasing the number of ads people had to wade through to get to content they sought. Advertisers were harmed as well, not just with higher prices but also because Facebook putting their ads next to offensive content.

“It is better to buy than compete.”

The enforcers proved their case with internal emails showing that the company deliberately and routinely engaged in acquisitions to eliminate competition, and then eroded user privacy when users had nowhere else to go. The FTC starts off its case with one email in 2008 from Zuckerberg in which he writes, “it is better to buy than compete.”

And it’s true. These mergers were harmful to competition, intended to fortify Facebook’s control of the social media market. Here’s another example, but again, the complaints are chock full of these (as is the Antitrust Subcommittee report):

In January 2012, just three months before Facebook acquired Instagram, Facebook’s Business Development Manager Amin Zoufonoun told his colleagues that gaining better functionality in photos was “one of the most important ways we can make 15 switching costs very high for users – if we are where all users’ photos reside because the uploading (mobile and web), editing, organizing, and sharing features are best in class, will be very tough for a user to switch if they can’t take those photos and associated data/comments with them.”

Facebook was locking in its users.

And the corporation understood the value of locking in its customers, even going so far as to stop forms of intrusive surveillance when users could flee to a different product (as indeed they had fled to Facebook from MySpace). One Facebook official warned that the company should not violate user privacy while under competitive threat from Google Plus. “IF ever there was a time to AVOID controversy, it would be when the world is comparing our offerings to G+.” He then recommended that Facebook save any controversial changes “until the direct competitive comparisons begin to die down."

The goal, in other words, was to stop users from switching by locking them into Facebook products by eliminating competitors and raising switching costs. Then, the company would show them more ads and spy on them more, in the process making the user experience worse, reducing investment and innovation in social media, and raising prices on advertisers. That’s illegal. And fortunately for the FTC and 48 state AGs, Zuckerberg and company helpfully wrote it all down in email.

Facebook’s main defense is that the government allowed these mergers in the first place. That’s true and certainly embarrassing to the enforcers who let the mergers through, though it is irrelevant to whether the mergers were illegal. (The company was also gracious enough to thank the two FTC Commissioners, Republicans Noah Phillips and Christine Wilson, who voted against bringing the case. That will become important, but I won’t go into why in this issue.)

The important part of this case is that it’s a statement by policymakers that what Facebook did was illegal. The Sherman Act is a criminal statute as well as a civil statute, and while this case is civil, monopolization is criminal behavior. It’s a form of theft, of economic violence. And Facebook makes a lot of money from engaging in crimes of various forms, monopolization being only one of them.

Scams are rampant on its properties, with fake military romances being a tragic and routine route for con artists to prey on lonely people. I noted how the shoe company Rothy’s is routinely robbed by counterfeiters who pay money to Facebook for the privilege of stealing. Tens of thousands of journalists have been laid off because Facebook and Google redirected ad revenue to themselves, through monopolization or just fraud. Here’s one satisfied customer making the point:

And yet, despite this harm, for years, policymakers and a small guild of technocratic antitrust ‘experts’ refused to take any monopolization law seriously. The cases against Facebook filed today are an indictment of that guild, which staffed the FTC when it approved these mergers. This antitrust bar and antitrust economists endorsed and lobbied for lawlessness and corruption, and the result of this lawlessness was, among other things, a massive collapse in the financing for news-gathering, as well as social dysfunction, violent ethnic conflict, and political manipulation all over the world.

So what changed? Well, we made the case for the rule of law. Many people were involved, like Jeff Chester, who opposed the Instagram and WhatsApp mergers at the time. The list of people who sought to address the harms of Facebook grew every year I was paying attention, and I started paying attention closely in 2013. Just in terms of what we did and Facebook’s reaction, we wrote, researched, and advocated against monopolization, and Facebook in particular. For one shareholder meeting, we hired an airplane to draw in in the sky outside of Facebook’s shareholder the slogan “You broke democracy.”

In response, Facebook hired a company to investigate us, and then tried to smear us in the press as anti-semites in an attempt to undermine our arguments. We were no strangers to retribution by powerful monopolists, and we aren’t the only ones that Facebook sought to target. I suspect they regularly go after many people. I mean, just before the election, Facebook sued NYU researchers trying to study how its political ad targeting worked after its ad archive ‘accidentally’ malfunctioned. This kind of dirty stuff is routine, it’s a business in Washington, D.C., and increasingly Brussels. It’s the crust of corruption protecting the slime of monopoly.

But that era is now over. There are now two major antitrust suits, one against Google and one against Facebook, both attempting structural separation. The antitrust guild is on their heels, and enforcers are beginning to step up globally. Millions of people, including me and you, are beginning to demand action, and beginning to relearn the civic muscles necessary to running a democratic society. As I wrote in October, we are all anti-monopolists now.

The fundamental dynamic here is a political change in how policymakers and Americans perceive large technology firms. To give you a frame of reference for how far we’ve come, in 2016, Facebook was so beloved that Hillary Clinton was going to put Sheryl Sandberg in her cabinet. Today Joe Biden has two types of companies who aren’t allowed to donate money for the inauguration: (1) any company involved in fossil fuels and (2) Facebook.

America is learning to govern again. It’s slow and halting, and there will be steps backwards as well as victories. But today, 48 elected officials, plus three FTC commissioners confirmed by the Senate, made the case to break up one of the largest companies in America, just two months after the Department of Justice made the case to break up a different and even larger corporation. And there will likely be more suits soon, against Google.

This was a good day.

Thanks for reading. Send me tips, stories I’ve missed, or comment by clicking on the title of this newsletter. And if you liked this issue of BIG, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you really liked it, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.

cheers,

Matt Stoller