Jun 7th 2018

Why the EU should dismantle Facebook

by Felix Arndt

 

Professor in Business and Management, De Montfort University

 

Facebook recently announced that it will add a dating app feature to its offering. This will join its portfolio of messaging, event marketing, blogging, instant photography, gaming and a digital marketplace, to name just some of its services.

The extensive data profile that Facebook stores of its members may allow it to tailor dating interests better than any comparable services. It is this level of information that the tech giant has on its users that is making lawmakers nervous. Not least because of the huge amount of power Facebook holds.

Hence, when CEO Mark Zuckerberg recently appeared before the European Parliament, he was asked to convince one lawmaker why they shouldn’t break up the “Facebook monopoly”.

When it comes to earning money, Facebook is really only in one industry. As Mark Zuckerberg put it to US senators: “We run ads.” And not just a few.

The many services that Facebook offers means it has vast amounts of data on its users’ lives, as well as the habits of non-users by accessing data from their friends or family who are active users. This data is then processed and sold through tailored advertising campaigns. As Facebook continues to grow – in terms of both users and the services it offers – this power to sell things will only increase.

Some analysts even project that, before long, Facebook will hold more data on its users than any government. Meanwhile, it makes a lot of money from this data. Its advertising revenues came up to around US$40 billion in 2017 (up 50% from 2016). With Google, it holds an 84% market share in online advertising.

Governments try to avoid monopolies in any market, as companies can exploit them by preventing new competition from emerging, by buying remaining competitors and by overcharging customers. Antitrust laws are the mechanism used to prevent this situation from happening. Whether it’s a monopoly on the way that people get their information, or a monopoly on they way they are advertised to, consumer welfare suffers from monopolised markets.

Antiquated antitrust law

Antitrust actions range from penalties, oversight and regulation to breaking up companies. Prevention is the best medicine – so part of the efforts should go into the question of how monopolies of this kind can be prevented. Clearly, traditional measures haven’t done the job in the case of Facebook. It was not for a lack of opportunity – in the past five years alone, Facebook made some major acquisitions of companies that have edged it toward monopolist status. These should have been prevented by regulators.

Mark Zuckerberg. catwalker / Shutterstock.com

Facebook bought upstart social media competitor Instagram in 2012 for US$1 billion. There were no red flags. More surprisingly, the takeover of Whatsapp for US$19 billion in 2014 also went through smoothly. But this systematic acquisition of would-be competitors could be considered as monopolistic.

These transactions did not attract the attention of antitrust authorities at the time. This is largely because neither Instagram nor Whatsapp made much revenue when they were bought and the Herfindahl index – which is used to determine whether antitrust measures are necessary – is based on revenues rather than value.

Internet platforms have challenged many countries’ age-old legal systems, Facebook included. It is a child of the new economy and has largely operated in a law-free space that we are only recently trying to build a frame for. This is incredibly difficult in the age of globalisation where companies operate in multiple countries across the globe.

But recent events highlight the need to give data protection concerns far more scrutiny than they have so far received. This applies to competition law as well as privacy. Google, for example, has been the subject of EU investigations for a while now and was fined a record US$2.7 billion for abusing its dominance to favour its own shopping services over that of the competition.

We need to adjust our antitrust policies to first understand value rather than revenues for the business models of the new economy – which source their power from serving the bulk of the public, rather than focused customer groups. Second, we need to understand the innovation capability of the market and assess whether new competitors can overthrow and complement the new market, rather than depend on the large players for adding value to a market. It is time to update our legislation to the 21st century.

Felix Arndt, Professor in Business and Management, De Montfort University

This article was originally published on The Conversation. Read the original article.

Browse articles by author

More Current Affairs

Aug 15th 2018
Why do conspiracy theories and general charlatanism so often receive their strongest support from the world’s dictators? Sure, dictators are almost always oddballs themselves, but that cannot be all there is to it. In fact, it is worth asking whether quackery is a necessary feature of authoritarian rule.
Aug 15th 2018
Across the global economy, the potential for automation seems huge. Adidas’ “Speedfactory” in Bavaria will employ 160 workers to produce 500,000 pairs of shoes each year, a productivity rate over five times higher than in typical factories today. The British Retail Consortium estimates that retail jobs could fall from three million to 2.1 million within ten years, with only a small fraction replaced by new jobs in online retailing. Many financial-services companies see the potential to cut information-processing jobs to a small fraction of current levels. And yet, despite all this, measured productivity growth across the developed economies has slowed. One possible explanation.....
Aug 11th 2018
US President Donald Trump’s erratic unilateralism represents nothing less than abdication of global economic and political leadership. Trump’s withdrawal from the Paris climate agreement, his rejection of the Iran nuclear deal, his tariff war, and his frequent attacks on allies and embrace of adversaries have rapidly turned the United States into an unreliable partner in upholding the international order. But the administration’s “America First” policies have done more than disqualify the US from global leadership. They have also created space for other countries to re-shape the international system to their liking. The influence of China, in particular, is likely to be enhanced.
Aug 9th 2018
Wall Street is full of turnaround talk following Tesla’s second-quarter earnings results, sending shares in the futuristic electric car pioneer up almost 10%. Investors welcomed news that the company was burning through cash at a lower rate and revenues were considerably higher, yet the results also showed that Tesla’s financial and operational weaknesses have not gone away. From my reading of the figures, this is a company in real trouble.
Aug 1st 2018
By seeking to disrupt virtually all that has defined the West since the end of World War II, Trump has brought the world to a historical turning point. At stake is not the US-EU relationship, which remains strong, but rather the West’s dominant position on the world stage. Trump is accelerating a shift in the global balance of power that will leave both America and Europe weaker in relative terms. As income and wealth shift from the West to the East, China will increasingly be able to challenge the US as the world’s leading geopolitical, economic, and technological power.
Jul 28th 2018
Alarming stories about the diabetes epidemic that threatens millions of lives have become commonplace, and with good reason.......The link between cheap, sugary and fatty food and obesity and type 2 diabetes is indisputable. The healthy/unhealthy food cost ratio has to change because the evidence is that education – while valuable – is not enough by itself. The evidence from many countries shows that in most chronic, lifestyle-related diseases, legislation is faster and often more effective.
Jul 28th 2018

Last week, the Israeli Knesset passed a new basic law which in the main enshrines “Israel [as] the historical homeland of the Jewish people in which the State of Is

Jul 24th 2018
This past week by a vote of 62 to 55, Israel's Knesset passed legislation called "Israel as a Nation-State of the Jewish People." Heralding the passage of the bill, Prime Minister Benjamin Netanyahu described it as "a defining moment in the annals of Zionism and the annals of the state of Israel...We have determined in law the founding principle of our existence. Israel is the nation-state of the Jewish people, and respects the rights of all its citizens." In reaction, Israeli hardliners and their supporters in the US celebrated the legislation as "clarifying", while more liberal voices lamented "the damage the bill does to the 'Zionist vision.'" This is one debate where I cannot take the side of the liberals because in reality, the "Jewish Nation-State" bill is in fact "clarifying" as it merely establishes in "Basic Law" practices and policies that Israel has been implementing since its founding.
Jul 23rd 2018
How does the current global economic outlook compare to that of a year ago? In 2017, the world economy was undergoing a synchronized expansion, with growth accelerating in both advanced economies and emerging markets. Moreover, despite stronger growth, inflation was tame – if not falling – even in economies like the United States, where goods and labor markets were tightening.
Jul 22nd 2018
While the US is busy slipping off of its precipice, many of its best known political figures are beating a rather tired old drum – the new Cold War, Russia, China, North Korea. It is boring, predictable, and dated. In the meantime, Russia and China are proceeding apace to reshape world order – without America.
Jul 21st 2018
Israel has for decades been running the occupied territories of Palestine–Gaza and the West Bank– with Apartheid tactics. As with black South Africans under Apartheid, most Palestinians have been deprived of citizenship in a real, recognized state. Their villages have been isolated by a network of what often amount to Jewish-only highways. They have trouble getting to hospital through checkpoints. Their territory in the West Bank is patrolled by the Israeli army, and the Israeli state is actively depriving them of their property and giving it to white squatters.
Jul 12th 2018
The cabinet members who resigned this week apparently feared that politics is taking May toward a “soft Brexit,” their worst of all possible worlds........“soft Brexit,” maintains the status quo, more or less, letting Europeans freely circulate into British labor markets and allowing European firms to operate easily in the UK. The problem with “soft Brexit” is that it raises questions about why the UK is leaving at all, since it will still have the same obligations to Europe as before, it just won’t have a voice when the remaining 27 members of the European Union meet to make decisions.
Jul 12th 2018
One study on the 2010 World Cup found that there was a 37.5% rise in admission rates across 15 accident and emergency departments on England match days........Examining reports of domestic abuse in Lancashire (a county of approximately 1.5m people in Northern England), across the 2002, 2006 and 2010 World Cup tournaments, we discovered a 26% increase in reports of domestic abuse when England won or drew, and a 38% increase when England lost. Reports were also more frequent on weekends, and reached their peak when England exited the tournament.
Jul 10th 2018
If, back in the 1980s and 1990s, the US government, rather than arguing for Chinese economic opening, had prohibited any US company from investing there, China’s rise would have been significantly delayed, though not permanently prevented. Because that did not happen, China’s rise is now self-sustaining. A huge and increasingly affluent domestic market will make exports less vital to growth.
Jul 10th 2018
Comparing today’s demagogues with Adolf Hitler is almost always unwise. Such alarmism tends to trivialize the actual horrors of the Nazi regime, and distracts attention from our own political problems. But if alarmism is counterproductive, the question remains: At what point are democracies truly in danger? What was unimaginable only a few years ago – a US president insulting democratic allies and praising dictators, or calling the free press “enemies of the people,” or locking up refugees and taking away their children – has become almost normal now. When will it be too late to sound the alarm?
Jul 9th 2018
In view of such actions, expectations for Trump’s behavior at the upcoming summit have gone from prickly to dangerous. The sense of foreboding has been heightened by the announcement that, just four days after the summit ends, Trump will meet with Russian President Vladimir Putin, in Helsinki. The nightmare scenario is easy to imagine: Trump lays bare NATO’s fractures, including by questioning mutual defense, before selling his allies down the river by publicly embracing Putin. But this does not need to be the outcome.
Jul 9th 2018
After 2027 (or maybe even 2025, only 7 years from now), the number of EVs will rapidly accelerate, as virtually all new vehicles bought will be electric (an effect of rapidly falling battery and other component costs and of the fuel for electric cars being essentially free; you can power one off your rooftop solar array).
Jul 3rd 2018
Most pundits interpret Trump’s outbursts as playing to his political base, or preening for the cameras, or blustering for the sake of striking future deals. We take a different view. In line with many of America’s renowned mental-health experts, we believe that Trump suffers from several psychological pathologies that render him a clear and present danger to the world.
Jul 3rd 2018
In the United Kingdom, Brexit looms large, with everyone from government ministers to tabloid newspapers frothing daily about the deal that will be struck with the European Union and the effects that it will have. But the EU faces too many pressing challenges to be obsessing about Britain. The UK’s concern is understandable: evidence is mounting of the likely damage a departure from the single market and customs union will do to the UK economy. According to new research from the Centre for European Reform, the UK economy is already 2.1% smaller than it would have been had voters chosen to remain. The hit to public finances totals £440 million ($579 million) per week.
Jun 26th 2018
Nowadays, Britain’s words and actions on the world stage are so at odds with its values that one must wonder what has happened to the country. Since the June 2016 Brexit referendum, British foreign policy seems to have all but collapsed – and even to have disowned its past and its governing ideas. Worse, this has coincided with the emergence of US President Donald Trump’s erratic administration, which is pursuing goals that are completely detached from those of Britain – and of Europe generally.