Facebook’s Secret War on Switching Costs
When the FTC filed its amended antitrust complaint against Facebook in mid-August, we read it with interest. FTC Chair Lina Khan rose to fame with a seminal analysis of the monopolistic tactics of Amazon, another Big Tech giant , when she was just a law student, and we anticipated that the amended complaint would make a compelling case that Facebook had violated antitrust law.
Much of the coverage of the complaint focused on the new material defining “personal social networking” as a “relevant market” and making the case that Facebook dominated that market thanks to conduct banned under the antitrust laws. Because the court threw out the FTC’s previous complaint for failing to lay out Facebook’s monopoly status in sufficient detail, the new material is important to keep the case going. But as consequential as that market-defining work is, we want to highlight another aspect of the complaint - one that deals directly with the questions of what kinds of systems promote competition and what kinds of systems reduce it.
When antitrust enforcers and scholars theorize about Big Tech, they inevitably home in on “ network effects .” A system is said to benefit from “network effects” when its value increases as more people use it - people join Facebook to hang out with the people who’ve already joined Facebook. Once new people join Facebook, they, in turn, become a reason for other people to join Facebook.
