- - Sunday, December 20, 2020

The Federal Trade Commission with 47 states are suing Facebook for allegedly squelching competition by acquiring startups, and seeking divestiture of Instagram and WhatsApp. The suit is fundamentally flawed and bad economic policy.

Facebook provides dynamic bulletin boards where individuals, affinity groups and businesses can communicate events in their lives, market products and generally network.

It’s a great site to gather classmates for reunions and has evolved into the dominant affinity-group pasteboard because of the network effect. Like the telephone system, the value of a social media network grows as more people use the same system. Unlike Verizon, AT&T and other cellphone services, social media apps generally lack interoperability — the ability to send a message from Facebook to Twitter.

Facebook doesn’t charge for membership — it can’t harm consumers by raising prices as is usually understood in antitrust enforcement. Its revenue comes mostly from advertising, where it competes with Google and others. Its digital ad market share is only 23%, and online ad rates have fallen 40% since 2010.

In the broader social media, messaging and moderation space, Facebook has plenty of competition — Snap, Slack, LinkedIn, Reddit, Discord and TikTok. The latter grew to 800 million users in just four years.

The real problem with Facebook and Google, which faces a Justice Department suit, Apple, which is fending off a class-action suit, and Twitter, which recently was fined by the European Union, is how they mine and abuse personal data and treat businesses who sell products and advertise on their platforms.

Amazon, for example, is notorious for mining the data of businesses that must market through its site to survive, and then creating competing products. Sometimes, it coaxes small firms into acquisition talks, only to obtain their proprietary information and mount strategies to drive them out of business.

Facebook is in reputational hell for enabling Russian meddling in the 2016 election and along with Twitter and Google for various privacy violations. However, such grievances would not be resolved by spinning off Instagram and WhatsApp.

The FTC approved Facebook’s acquisition of Instagram in 2012, when it was only a photo and video sharing service and WhatsApp in 2014, when it was only a text messaging and voice over the internet service. Since then, Instagram, WhatsApp and Facebook have integrated backend functions — servers, software and networking — making the three difficult and costly to separate.

Facebook’s popularity among young people is declining, and its user base appears to have plateaued and may decline. Anti-conservative biases at Facebook and Twitter are driving right-leaning users to Parler, but that trend defies the network effect and may not hold up if President Trump recedes in prominence.

Facebook is increasingly reliant on Instagram for revenue growth. Although WhatsApp currently contributes little to the bottom line, both apps, in combination, are central to Facebook’s survival strategy.

Facebook has been building shopping and payment features into Instagram and customer-business interactions capabilities into WhatsApp. Linked together through Facebook those have the potential to amalgamate into a powerful competitor for Amazon and Walmart.

Perhaps the FTC and state’s attorneys generals haven’t noticed but that’s very pro-competitive. It could provide the American answer, so far lacking, to China’s WeChat, which permits all those functions and more. Add Libra, which would create hard-currency-backed digital money and payments system, and Facebook could offer an American answer to China’s Alipay and other Fintech competitors.

Congress, the broader Washington establishment and general public have good reason to dislike Mark Zuckerberg and many of the other Silicon Valley elite, but that is no reason to punish their ordinary shareholders by breaking up their companies. Divesting Instagram and WeChat could ultimately destroy Facebook, much as spinning off regional telephone companies marked the beginning of the end of AT&T.

EU competition authorities, instead, are focusing on compelling these companies to clearly explain to users how they intend to exploit their personal data and obtain their consent. Refrain from mining data and squeezing smaller businesses on their platforms and treat all products on an equal footing with their own offerings. And be more proactive about taking down harmful content—and keeping it out in the first place — when identified by authorities.

Americans have a long history of disliking monopolies going back to the Boston Tea Party — the cargo the patriots threw overboard belonged to the East India Trading Co., a royal monopoly. But acting on visceral impulses will dampen not increase competition, hand the future to Chinese fintech and ecommerce moguls and make Americans poorer in the process.

• Peter Morici, @pmorici1, is an economist and emeritus business professor at the University of Maryland, and a national columnist.

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