US vs Meta : Progressive regulation or crushing the free market?

IT SOUNDS like a chapter in prehistory, but in 1969 the US government launched an antitrust case against the then technological giant International Business Machines Corporation (IBM) about the mainframe computer it was making.

The case dragged on for 13 years, and by then personal computers had entered the market and made mainframe computers extinct, leading the Justice Department to drop its case. Then just a few years later, IBM itself was fighting for survival as it found itself competing against the new kids in Silicon Valley.

In the 1990s another government antitrust case, this time against one of those techie new kids, Microsoft, ended up with a settlement; and by then, Microsoft’s Internet Explorer was losing its dominance to Netscape Navigator and eventually to other browsers which were bundled with Windows, weakening the case against it.

As economist Milton Friedman noted at that time, the antitrust against Microsoft set a dangerous precedent with the government increasing its regulation of what previously was an industry relatively free of government intrusion; and that would eventually impede technological progress, he warned.

The high-tech markets were competitive and changing rapidly beyond the ability of government bureaucrats and lawmakers to control the process, argued Dr Friedman and other free market oriented economists. The only real beneficiaries of these antitrust cases, they said, were lawyers and lobbyists, and the resources that go to them could have been much better used in developing better products.

These same arguments are now being raised after the Federal Trade Commission (FTC) filed in July an injunction to block Meta, the company formerly known as Facebook, from buying a virtual reality (VR) company called Within Unlimited, a VR app developer, which could potentially limit Meta’s push into the so-called metaverse.

This antitrust lawsuit pits Lina Khan, the FTC chair and a long-time progressive critic of corporate concentration, against Meta and its chief executive Mark Zuckerberg, although the commission eventually decided to drop Zuckerberg from the suit. This recent suit has been part of a long investigation by FTC during which it has been slowly assembling an antitrust case against the tech giant.

Indeed, the FTC had already brought another court case against the company, filed last year in conjunction with 46 states, alleging that Meta had accumulated monopoly power over the social networking market through its acquisition of Instagram and WhatsApp. A date for the trial has yet to be decided, which the FTC hopes could set the stage for the possible breakup of Meta and perhaps also of other Big Tech companies.

From that perspective, the recent move against Meta’s purchase of Within, under which the FTC claims that the purchase would “tend to create a monopoly” in the market for VR, more specifically VR “dedicated to fitness apps”, could strengthen the case by Dr Khan and her progressive colleagues at the commission to dub Meta as a “monopolist”.

Meta CEO Zuckerberg has indeed taken steps to expand in the VR market and now owns a best-selling VR app. His plan to broaden the market with fitness workout apps makes business sense, and hence his efforts to acquire Within, which developed the popular VR fitness app, Supernatural.

But the FTC’s argument that Meta’s acquisition of Within “poses a reasonable likelihood of substantially lessening competition in the market for VR dedicated to fitness apps” is open to challenge, especially when one considers that workout enthusiasts have the option of using other fitness programmes, or for that matter, running on a treadmill in the gym.

Much of the case against Meta’s acquisition of Within seems to consist of somewhat “academic” conjecture, such as the suggestion that banning Meta from acquiring Within would provide it with incentives to develop its own fitness app, without any way to prove the argument, while discounting the fact that companies like Within come up with apps such as Supernatural, precisely hoping that large companies like Meta would eventually buy them.

In fact, the notion that Meta is seeking to establish a leading position in the VR market through acquisition or otherwise, at a time when other companies are trying to do the same, may not necessarily make a lot of sense if the goal is to increase market competition. Unless the long-term goal is actually to break up Meta and other “big” high-tech companies, derided as “behemoths” and based on the assumption that bigness is by definition a threat to competition.

Indeed, Dr Khan is hoping that a court ruling to prohibit Meta from acquiring Within could serve as a precedent that would help create a legal and political momentum in her efforts to force the company to give up its control of Instagram and WhatsApp and other acquisitions, leading eventually to the breakup of the company.

In that context, the progressive majority in the FTC is trying to rewrite anti-trust laws and especially promote their aggressive moves against so-called Big Tech through FTC rulemaking, since Dr Khan and her supporters recognise that their ideas would fail to win the support of a majority of lawmakers on Capitol Hill.

In reality, like in the cases against IBM and Microsoft, these antitrust cases could drag on in the courts for years while market conditions would continue to change over the period as new generations of users desert Facebook, and the free markets (as opposed to antitrust rulings) increase competition and improve the technological products and benefit consumers.

But then the progressive antitrust warriors don’t consider consumer welfare as the standard for identifying the need for enforcement, and instead are looking for an excuse for the government to constrain the power of corporations and regulate the markets based on notions of “equity” and “fairness”.

Ironically, consumers who continue to congregate in social media and take advantage of the services provided by Apple and Amazon don’t seem to share the antipathy of the current FTC against these companies that the commission, with the support of bureaucrats and politicians, is seeking to break up.

And if these consumers do decide one day that Facebook, for example, is no longer of interest or serves their needs, they will stop using it and move on to the next new tech kid on the block.