Issue 84

Yale on Facebook's dominance

Delivered on 29 June 2020 by Justin Pyvis. About a 4 min read.

Imagine a dominant company with 75% market share that it achieved only by "misleading consumers and buying up rivals". Then, because of "network effects", it has become nearly impossible for any other company to overcome its lead. It "can collect monopoly rents, manage the flow of information to most of the nation, and engage in virtually unlimited surveillance into the foreseeable future".

That company is of course Facebook, as analysed by Yale's Theodore Nierenberg Professor of Economics Fiona Morton. If you were to take her analysis at its face value then the only logical conclusion - which Morton and her co-author David Dinielli also arrived at - would be some form of antitrust, "reversing past acquisitions and imposing a requirement that Facebook work in concert with other social networks".

The only problem is that the analysis is deeply, fundamentally flawed, and you don't need a 36-page paper to realise how wrong it is.

First, Facebook doesn't collect monopoly rents ("earned by firms that are able to restrict supply and/or increase prices without fear of attracting competitors"). Facebook provides its consumer service for free but has lowered prices and improved quality for people who want to advertise. It also faces intense competition not just from other social networks but from Google, television, newspapers, radio, blogs, billboards... essentially any platform that shows advertisements.

Second, consumers aren't harmed. Consumers have never had more news and media choices than they do today. Facebook doesn’t have a monopoly on people's attention. It may be good - very good - at capturing people's attention, but that's not the same thing as a monopoly. It has fiercely competed against other companies and simply done a better job to date.

Third and finally, the authors wish to impose "a requirement that Facebook work in concert with other social networks". But doing so would effectively set a standard to which all social networks - both present and potential - would have to conform. Such regulations would disproportionately benefit incumbents like Facebook, which can:

  1. more easily afford the compliance costs; and
  2. already exist, so will fit whatever 'social network' compatibility definitions are established.

Some future competitor may not be able to "work in concert" with Facebook because it's built entirely differently, with the regulations stifling its early development (perhaps even sufficiently long to allow Facebook to acquire it!).

The only part of the Yale paper that I agree with is that "network effects" make it more difficult to leave Facebook. Switching costs are real, but they're not infinite. If a better rat trap comes along you can be sure people will switch to it, just as they switched from MySpace to Facebook.

You can dislike Facebook (I certainly do). But antitrust is not the answer and if anything would likely work to cement whatever limited market power Facebook has.

Enjoy the rest of this week's issue. Cheers,

— Justin

Other bits of interest

This was an inevitable consequence of the GDPR

At least the European Union has finally admitted it:

The European Union’s 2018 General Data Protection Regulation (GDPR) “is challenging especially for small and medium-sized enterprises”, according to an official report published “as part of a legal obligation for Brussels to give an update on the progress of the data rules’ implementation”.

Trump's trade policies will harm everyone

Mr Trump’s attempt to de-Sinify the semiconductor industry may do more to de-Americanise it instead.

Meanwhile, the Trump campaign is looking at moving to a competitor of Facebook/Twitter. Yes, they do exist, they're just not as popular (the barriers to entry are quite low - even I run my own Twitter competitor on the Fediverse!).

...the rebuke from the social media giant [Facebook], following restrictions from Twitter Inc. and Snap Inc.’s Snapchat, has top campaign officials considering alternatives, such as moving to another, lesser known company, building their own platform or doubling down on efforts to move supporters to the campaign’s smartphone app, according to people familiar with the discussions.

Wait, fax machines still exist?

Escott says every day, more than a thousand test results are faxed to Austin Public Health, rather than reported digitally. APH staff members must then sift through the results manually. And in some cases in which people have tested positive, Escott says, the faxed test results don’t include contact information for patients, so staff members have to do detective work to track them down before they can make contact tracing calls.

Escott says it's not uncommon for someone who tests positive for COVID-19 to go a week to 10 days before hearing from a contact tracer.

William Barr is pure evil

Ayer, long an outspoken critic of Attorney General William P. Barr, said in his opening statement that Barr “poses the greatest threat in my lifetime to our rule of law and to public trust in it.”

In a lengthy and strident attack on Barr’s tenure as the country’s top law enforcement official, Ayer ticked off incidents he saw as Barr working to help President Trump at the expense of the institution he leads. He said Barr had in particular taken aim at post-Watergate measures and “sought to give the president nearly unlimited powers by negating or overriding many independent processes that operate as important checks on executive branch action.”

Central planning at its finest

Pardis, Iran. Yikes.

Issue 84: Yale on Facebook's dominance was compiled by Justin Pyvis and delivered on 29 June 2020. Join the conversation on the fediverse at