The FTC v. Meta Ruling: Chronicle of a Failure Foretold
Last week, U.S. District Judge for the District of Columbia James Boasberg ruled that Meta does not hold a monopoly in the social media market. As we had discussed in a previous DisCo post when the trial concluded, the market definition proved to be the case’s biggest flaw and the FTC’s Achilles’ Heel. As Judge Boasberg concluded, the FTC failed to carry its burden to prove Meta’s alleged monopoly in its artificially narrow market definition of “personal social networking services.” The case failed because the agency’s contrived market definition was out of touch with market realities.
In antitrust cases, the decision on whether an enforcement agency should intervene must be based on objective, fact-based analyses of competitive dynamics. Careful consideration of a proper market definition is essential. An artificially narrow market definition risks distorting market realities and potentially bringing an enforcement case that chills innovation in the market. In the FTC’s case against Meta, the agency’s market definition purposefully excluded companies such as TikTok, Reddit, and many other social media platforms that vigorously compete with Meta for user time and advertising revenue, considering that the FTC’s alleged relevant market only included Facebook, Instagram, Snapchat, and MeWe.
However, the Court concluded that TikTok and YouTube also competed with Meta products. The evidence resoundingly showed that consumers treat TikTok and YouTube as substitutes for Facebook and Instagram: a simple experiment testing how consumers actually substituted Meta’s platforms poked a hole in the FTC’s paper-thin case. The Court further noted that while “Personal Social Network” apps may have been a market unto themselves when the FTC filed this case in 2020, or when it approved Facebook’s acquisitions of Instagram and WhatsApp in 2012 and 2014, the FTC’s claim today is clearly outdated.
The Court stressed that the FTC needed to prove that Meta was currently violating the law, which would only happen if Meta: (1) has monopoly power and (2) is maintaining that power through anticompetitive conduct. The agency, however, failed the first step. Judge Boasberg underscored what every Internet user knows: Meta competes with a number of platforms, and the company’s relevant market shares are therefore nowhere close to those required to establish monopoly power.
Importantly, the Court also recognized that digital markets are dynamic and highly competitive. Judge Boasberg stressed how the social network landscape has dramatically changed since 2021. Today’s social media market largely prefers short-form video content, with competitors TikTok and Instagram Reels “leading the charge.” Judge Boasberg noted that social media markets have shifted from the family-and-friends era to one defined by “unconnected content.” Markets, especially in the digital ecosystem, are in constant flux due to the intense degree of competition present. The FTC’s market definition and arguments in this case failed to account for that.
Unfortunately, this is not the only case the FTC pursued with a nonsensical market definition. Its ongoing case against Amazon, which is set to go to trial in 2027 – 4 years after the lawsuit was filed and 8 years after the investigation started – suffers from the same ailment. The FTC is still arguing that Amazon holds a monopoly in two separate markets: “online superstores” for consumers and the “online marketplace services” for third-party sellers. The former, besides sounding more like a Marvel character than a relevant market, overlooks extensive competition from both online and brick-and-mortar retailers. The latter reflects the FTC’s stated concerns that Amazon’s logistics competitors need help to scale. Both definitions seem to be outcome-oriented. Instead of carefully analyzing market realities to determine the appropriate relevant market, the FTC’s desire to artificially designate Amazon as a monopoly has led it to manufacture an illusory “market” that might undermine its entire case.
The FTC’s market-definition troubles in the Amazon case were exacerbated during the “Economics Day” hearing earlier this year, when the agency claimed that it might be possible that Amazon has no competitors in its unrealistic market definitions. However, when looking at the evidence available, the realities of the retail market come to light.
Studies have shown time and time again how online and brick-and-mortar retailers compete head-to-head with each other, with firms such as Costco, Walmart, CVS, and Target engaging in “omnichanneling,” broadening their market presence by selling products in both digital and physical stores. The truth of the retail market shows that Amazon only accounts for four percent of overall retail sales. While the FTC includes only a few companies in its narrow market definition, a significant number of other firms consider Amazon a key competitor, including American booksellers, and more than 20 companies in the retail market explicitly list the company as a key competitor in their 10-K statements.
As retail markets have evolved in the more than five years since the Amazon investigation started, the agencies should learn from the FTC’s loss in the Meta case that courts will not accept artificially narrow market definitions, particularly in the face of overwhelming evidence showing the realities of the relevant market. The FTC’s market definition in its case against Amazon completely misses the mark of the market realities. Unless the agency reconsiders its stance, just like Judge Boasberg’s ruling in the Meta decision, a Court ruling in the FTC v. Amazon case will likely be another chronicle of a failure foretold.
