A competing service might offer better features than Facebook but can’t establish itself because it doesn’t have the network of friends already in place.Īntitrust law does have ways of dealing with natural monopolies. Instagram may have been on its way to providing such competition, which is why many now regret that Facebook was allowed to buy it. For example, Google+ failed to become a meaningful competitor for Facebook because people stuck with the social network where all their friends were. Launching a new social media service doesn’t require costly infrastructure, but it is made difficult by the hurdle of creating a network that people want to join. Network effects occur when something increases in value as more people use it. In the past, a few companies were allowed to exist as natural monopolies because of the high fixed costs and inefficiencies of competition – such as in the utility sector.Īntitrust regulators have allowed them to exist but only with additional scrutinies – such as price controls and oversight boards – to compensate for the lack of market monitoring.Īntitrust law is now facing the question of whether “network effects” might also justify regarding a company such as Facebook and its massive social media network as a natural monopoly. Large companies are also a primary antitrust concern because they can lead to monopolies that limit competition, discourage innovation and harm consumers.īut in some industries, such as utilities and communications, competition can at times be impractical, leading to so-called natural monopolies.

It allows them to identify untapped and underserved markets, spot potential competitors and prevent them from developing – the kind of edge that antitrust law is meant to thwart.Ĭould network effects create natural monopolies? What’s more, this data gives these companies an extraordinary market advantage. And we’re required to give up that data in exchange for “free” use of their products. So an antitrust policy that focuses on consumer price doesn’t see a problem.īut the data about what consumers do, where they go, who they know and what they buy has great value to companies like Google and Facebook.

Consumers don’t have to pay a dime to chat with friends on Facebook, search for the best route using Google Maps, exchange emails, comb the internet for facts and figures or engage in countless other activities. Today the biggest tech companies allow “free” consumer access to most if not all of their products.

A company’s ability to raise prices is the main test regulators have used to determine whether it possesses such market power.Ī growing body of analysis, that takes into account some of the different features of these companies, shows that relying so heavily on price obscures other potential harms. Traditionally a company’s size has attracted the most antitrust scrutiny because being big often translates into market power that it uses to prevent competitors from developing.

Amazon gets antitrust scrutiny on data