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By Trinabh Banerjee
The Digital, Governance and Sovereignty Chair will now publish, on a regular basis, the finest essays and papers written by Sciences Po students in the course of their studies.
This blogpost features the essay written by a second-year student at Sciences Po (Reims campus), as part of the course taught by Rachel Griffin and entitled ‘The Law & Politics of Social Media’.
We live in the age of technology giants. Companies like Google, Apple, Microsoft, Amazon, and Meta, control much of how we communicate, use the internet, and go about our daily lives. To search for something on the internet means “googling it” and to order something online often means using Amazon. We are connected by Facebook, and post selfies on Instagram. The growth of these giants has stretched our legal, societal, and political boundaries. Meta – the conglomerate that owns (among other businesses) Facebook, WhatsApp, and Instagram – is a prime example. The company has been repeatedly criticized for its data handling and privacy practices, business practices, and anti-competitive behavior.
Anti-competition laws, in particular, are important because they protect consumers by ensuring lower prices. These laws incentivize companies to create better products, through increased competition amongst firms for profit opportunities, and allow for innovation and greater economic development. Meta has been subject to regulatory scrutiny for allegedly violating these laws, facing punishments up to and including breaking the company up, an approach popularly envisioned by spinning off Meta’s major entities: Facebook, Instagram, and WhatsApp.
This increasing scrutiny has resulted in legal frameworks being built to rein in firm power, such as the EU’s 2022 Digital Markets Act (DMA). With Meta’s bad behavior making headlines, it is useful to consider what legal risks it faces particularly in the EU and US contexts. Analyzing how and why Meta might be broken up, the consequences of such a decision, and the criticisms of this emergent “breakup” culture helps to contextualize the wider debate on whether breaking up the company is the best course of action.
Anti-Competition Law in the EU and the Risks for Meta
Within the EU, the case for Meta’s breakup has its roots in the successive violations of both anti-competition and privacy laws. Although the firm has developed a de facto fine-paying culture, this has not deterred EU regulators, which continue to investigate violations of EU law. The EU’s competition laws, and the recent passage of the DMA, provide a framework for analyzing how Meta’s breakup would happen in the EU context.
The EU’s general approach to competition law comes primarily from Articles 101 to 109 of the Treaty on the Functioning of the European Union (TFEU). These articles prohibit collusion, coordination, and abuse of a dominant market position. The European Commission (EC) is primarily responsible for enforcing these provisions by investigating alleged violations and imposing penalties. Member states’ National Competition Authorities also have powers to enforce competition law.
The EU is well known amongst regulators worldwide for its hands-on approach to holding firms accountable, going after repeat offenders with a series of large fines. Google, for example, was fined a cumulative total of €9 billion between 2017-2019 for anti-competitive behavior. The underlying aim of the EU’s approach to competition law is to preserve the proper functioning of the single market, through free competition and the free movement of goods and services. This philosophy has meant an approach grounded in “constraining the economic power of large firms while preventing blanket control of markets by governments”. The EU ensures the protection of consumer rights and holds firms accountable primarily through administrative measures (in the form of fines), though individual criminal liability for participation in anti-competitive behavior exists (and has been enforced) in some member states.
In line with the EU’s general competition philosophy, the passage of the DMA provides a lever to potentially force the breakup of Meta. The DMA imposes strict rules on “gatekeepers” – companies with a large market share, user base, or market entrenchment – to promote a level playing field and reduce anti-competitive behavior. Meta, likely to be considered a “gatekeeper” due to its size, must comply with rules that mandate data sharing with smaller competitors, bans on both self-preferencing and discriminatory rankings, and the promotion of interoperability, to promote and protect consumer choice.
There is a possible scenario in which, following successive DMA violations within 8 years, the EU forces the breakup of Meta under the principle of maintaining free competition and the proper functioning of the single market. Specifically, the DMA gives the EC the power to “force remedial action through the divestiture of (parts of) a business” as outlined under Article 11(8) of the Act. It is possible that if Meta, which has struggled to meet the requirements of existing laws and has undermined consumer rights, was unable to meet the standards of the DMA because of repeated violations, then the EU could force divestitures to bring Meta into compliance.
Indeed, competition proceedings against Meta are already underway: the EC notified Meta of suspected violations of Article 102 of the TFEU, accusing the company of boosting its Facebook Marketplace classified advertising service by linking it directly with Facebook and using data collected from competitors who advertise on Facebook and Instagram to favor its own services. These actions, if proven, would fall under the umbrella of self-preferencing, whereby companies act in ways designed to benefit their own product at the expense of competitors. Because of Meta’s dominance in the social media and digital advertising market, such self-preferencing (which though not illegal in and of itself) may violate Article 102’s ban on the abuse of a dominant market position. The outcome of the case is still unclear, and the investigation is likely to take years to fully conclude. Nevertheless, non-compliance with the DMA is likely to be considered within the broader picture of Meta’s violations of existing competition law.
It should be noted that, although technically possible, a breakup would be “a last resort”, according to Margrethe Vestager, the EU’s Competition Commissioner. In any case, a potential breakup would be years away, since the DMA enters into full force no earlier than mid-2024 and given the length of time it takes to investigate, appeal, and adjudicate such cases. Ultimately, however, the EU appears to have both the legislative tools and the capacity to pursue a breakup of Meta, if it so wished and if there was sufficient evidence to do so.
An American Antitrust Revival Faces Off Against Meta
In contrast to the EU, the US has historically taken a hands-off approach to enforcing antitrust laws, particularly in recent decades. From the 1970s onwards, the growth of the much-criticized Chicago School movement made antitrust violations more difficult to prove and gave firms a much freer hand in markets. This was because of the use of increasingly technical neo-classical economic arguments (that remained abstract to the public) and a shift towards a vague “consumer welfare” standard that de-prioritized the broader socioeconomic goals of antitrust enforcement. The Chicago School movement also prevented the kind of sweeping ex-ante regulation that prevented monopolies from forming in the first place. Broadly speaking, US antitrust enforcement shifted to presume that the free market incentivized firms to act in the best interests of the consumer, which was not the case, but which had the effect of both weakening enforcement and policy direction. This has had consequences today, with the US economy “more highly concentrated than at any point since the original Gilded Age”, a far cry from the monopoly-busting actions of the 1940s-1960s.
Yet, with signs of a revival in antitrust enforcement, Meta is not operating free from risk. On the legislative side, there has been bipartisan support for renewed antitrust measures directed against tech giants including Meta. Under the American Innovation and Choice Online Act, dominant tech companies would have been banned from self-preferencing (an act the EC has alleged Meta of committing), while the Open App Markets Act would have forced the opening of Apple and Google’s smartphone operating systems to rival app providers. These would have increased consumer choice and competition by lowering barriers to entry and firm power. Though neither bill went to a vote (and others have stalled), significant funding was given to both the Federal Trade Commission (FTC) and the Department of Justice divisions charged with investigating antitrust cases. Indeed, FTC chair Lina Khan has taken a hands-on approach (nevertheless based on an ex-post method) to antitrust enforcement in recent years, particularly with the FTC’s re-filed case against Meta, a critical component of the push to reassert antitrust enforcement.
The case draws a clear link between Meta’s acquisition of rival social media services and the maintenance of its monopoly position in the market. The FTC argues that Meta’s acquisitions of WhatsApp and Instagram were based on an inability to innovate, resulting in the company skewing the market “by buying up new innovators that were succeeding” to control prices and remove competition. This allowed Meta to create and maintain a service with poorer quality and privacy for consumers. As a result, the FTC wants the courts to force Meta to separate from WhatsApp and Instagram.
This puts the case in line with the growing number of antitrust policymakers who subscribe to the New Brandeis movement, which proposes that antitrust philosophy should consider structural economic issues and market conditions – the “structures and processes of competition” – rather than the Chicago School’s “consumer welfare” approach, which only considers price levels. The FTC’s case asserts that Meta structurally deformed the personal social media landscape, preventing fair competition and consumer choice. The case, therefore, serves as the most critical piece in the push to break up Meta in the US and is the government’s only major attempt at the time of writing.
Breakups Have Consequences
Despite the context for breakup in both the EU and US markets, it remains uncertain whether spinning off Meta’s biggest services would have a positive impact. It is conceivable that breaking up the firm may do more harm than good. Nevertheless, these considerations should be weighed against the benefits to various stakeholders that breaking up the company might achieve. This results in a careful balancing act that needs to be met for a potential breakup to go smoothly.
For consumers, both in the EU and the US, breaking up Meta into its main individual companies might create a situation that negatively impacts the overall user experience of services such as Instagram and Facebook, which rely on integration. This is on the back of anti-competition arguments that remain relatively technocratic and difficult to understand for the average consumer. Most people want efficiently provided goods and services for a low price. Consumers are used to seamless integration and provision of services, and breaking Meta up might disrupt this as users realize that smaller competitors create confusion and a lack of coordination in the market.
Nevertheless, allowing smaller competitors to emerge does create the structure for a more varied market. Meta has been known to violate data privacy, for example, and the emergence of smaller competitors might serve as an incentive for the company to improve its practices to maintain users. This would have a twofold positive effect: increasing competition (thus lowering prices for advertisers, in light of Meta’s dominant position in the online advertising space across the EU) and encouraging better firm behavior. Government policy would therefore have to navigate the balance between breakup and its outcomes, particularly looking toward unintended consequences.
The issue of breakups also has impacts on governments. Firms with large user bases and high market capture simplify the enforcement of regulation on, for example, illegal content and privacy rights. Fragmenting Meta could increase the number of social media firms in the market. A higher number of firms would ostensibly increase spaces for illegal content to reside and the overall complexity and costs of investigations of potential violations. Yet firm size also poses a risk in and of itself. Meta’s services have been used to spread misinformation/disinformation in several elections around the world. The success of and concern about these campaigns reaching tens of millions of users comes down to Meta’s sheer size and global reach. Breaking up the company would limit the capabilities of nefarious actors to target a user base because users would be spread out over more platforms.
For market stakeholders, the prevalence of network effects in social media services like Instagram and WhatsApp may limit how effective a breakup will be. These companies are socially entrenched and so a new service is unlikely to pull users away because all that user’s contacts are on the legacy platform, creating a high barrier to entry. The level of competition thus won’t change, and the newly individualized services (while not part of a conglomerate) still go on to monopolize the market.
The market may instead see increased instability because of job losses and decreased business confidence because of regulation. Meta, for example, has repeatedly threatened to pull out of the EU over a separate data issue, pointing to one possible strategy if the company was seriously threatened with a breakup. Yet conglomerates like Meta struggle with innovation and efficiency, creating openings for new firms to capitalize where Meta could or would not. This increases market competition and has the positive effect of encouraging job growth and further innovation. In essence, the market-based consequences of breaking up the firm depend to some extent on how other actors may respond.
The mechanisms to (potentially) break up Meta have also been criticized. In the EU, the DMA’s critics assert that the legislation was designed to work backward to capture certain firms within its regulatory framework, rather than from the ground up. This creates a situation where it is unclear whether standalone companies spun off from Meta would meet the standards necessary for “gatekeeper” designation, reducing the level of scrutiny and regulatory burden on these now smaller companies, which may still have issues of their own. The DMA has also been criticized for concentrating the power of enforcement in the EC’s hands, potentially increasing the length of investigations that already take a long time to establish, and making anti-monopoly investigations less transparent.
The FTC case against Meta has also been criticized for its narrow ex-post focus on personal social media – in that the case regards Snapchat as a competitor, but not TikTok, even though Meta has lost users to the latter. Additionally, the US courts are not necessarily well-placed to negotiate issues of digital governance. Meta can’t necessarily be grouped into a single market, raising questions as to which market is being monopolized. Most of Meta’s revenues are advertising-based, but the FTC regards the company as monopolizing personal social media. Deciding an antitrust case with blurry boundaries has implications for future related decisions, particularly because the US legal system is so dependent on precedent from previous court cases.
Any potential breakup of Meta would therefore have to consider the overarching concerns of various stakeholders and the mechanisms by which such a breakup is effectuated. Reform-minded regulators, inspired by the DMA, might want to consider improving regulation to prevent competition issues in the first place and build on where it’s lacking. The issue of how Meta could be broken up thus opens larger debates about the impacts of regulations designed to protect consumers, competition, and the market at large. In today’s legal and socioeconomic framework, however, increased regulatory scrutiny against firms such as Meta leaves such companies on shaky ground for the time being.
Trinabh Banerjee is a Bachelor’s student majoring in Politics & Government at SciencesPo. His interests lie in analysing social, economic, cultural and legal movements to explain the impact of political phenomena on politics and international relations on local, national and global levels.
