Facebook Stock Plunge Highlights Flaws of Targeted Antitrust Law

By Ryan Bourne and Brad Subramaniam of Cato. 

"Markets were roiled last week when Meta’s (Facebook’s parent company) stock plunged and the company’s market capitalization fell below $600 billion for the first time since early in the pandemic.

This number was more symbolic than it might have seemed. In recent years, politicians have attacked ‘Big Tech’ companies for discriminating on their platforms in favor of their own products. Apparently, it is bad news that Apple’s iPhones come pre‐​loaded with apps that compete with others on App Store, or that Google puts Maps results near the top of Google searches. Given this supposed anticompetitive conduct, Congressional bills outlawing much “self‐​preferential” behavior had used $600 billion in market capitalization as one threshold for determining whether an online platform would be covered by the regulations.

The most recent bill iteration– Sen. Amy Klobuchar’s American Innovation and Choice Online Act (AICO) – revised that figure down to $550 billion (or, alternatively, if the online platform has one billion active users). So Meta and other companies would still face significant restrictions if the bill passed. Large online platforms would generally be banned from using data from third‐​party sales to improve their own products, from treating their own products favorably in search rankings, or from preferencing their goods in ways that “materially harm competition” (subject to some unclear exemptions).

Economists know that self‐​preferencing tends to benefit consumers by facilitating innovation, lowering prices, and expanding product choices. Think about it: are you better or worse off that Amazon launches Basics products that compete on its Marketplace? So, these bills are more about protecting competitors on online platforms than enhancing consumer welfare. But this incident with Facebook’s market capitalization reminds us of two more key flaws with these sorts of laws:

1. They are explicitly designed to target today’s Big Tech companies, distorting competition

Self‐​preferential conduct occurs throughout the economy, from shopping centers to on other online platforms. But the congressional bills’ thresholds mean enforcement is deliberately being targeted at Apple, Google, Amazon, and Meta, but not other online retail platforms which also self‐​preference, such as Walmart or Target. In other words, AICO and other such bills would create a two‐​tier legal system—they would tilt the deck in competition by establishing one set of standards for companies that politicians don’t like while exempting everyone else. There is no economic rationale for this sort of differentiation in the treatment of conduct by firm size.

2. The cliff‐​edges in these regulations would distort business conduct

The decline in Meta’s market capitalization reminds us that markets are ever‐​changing. In time, new companies will be caught by these thresholds, while current ones may drop out of coverage completely.

How will this sort of arbitrary threshold affect innovation and conduct? Will firms implement paywalled subscription systems on their platforms to shave off users and exempt themselves from regulation if they get close to the threshold? In the future, product bundles which have overwhelmingly added consumer value, such as Prime Video being packaged with an Amazon Prime subscription, may never reach market, as companies worry about becoming ensnared in such regulations if they grow rapidly. Evidence from France, where labor market regulations vary by a company’s number of employees, suggests that regulatory thresholds can be highly distortionary.

Ultimately, these bills are poor excuses to appease the anti‐​Big Tech political zeitgeist. By imposing such arbitrary thresholds because of political favoritism, Klobuchar and her colleagues would slow the release of innovative new products, create perverse incentives for businesses to find ways of circumventing the regulations, and harm outcomes for consumers."