Social Media Companies Aren’t the Good Guys. They’re Also Not Monopolists. – Ryan McMaken (10/27/2020)

Listen to the Audio Mises Wire version of this article.

There are plenty of good reasons to hate social media. It negatively affects mental health. It provides a skewed and inaccurate view of the real world. It is a tool of manipulation employed by deeply partisan billionaires.

But there is one thing that every social media company is not: a monopoly.

Yet, some critics of these companies casually throw around the word “monopoly” in an effort to convince the public and politicians that government power must be expanded (yet again) to regulate yet another industry. We’re told there is nothing users can do when these firms delete (i.e., “censor”) politically incorrect posts, thus controlling what users can read or share in their news feeds. The fact users don’t leave for some other social-media platform, is is claimed, is undeniable proof these companies are monopolists. 

It’s not hard to find pundits and columnists who make this claim (e.g., here and here and here). Roger Simon at PJMedia provides the predictable conclusion: have the federal government solve the problem with new anti-trust powers!

Once we begin to dig a little deeper, however, it quickly becomes apparent firms like Facebook and Twitter don’t have monopoly control over supply—a prerequisite for securing a monopoly—and they don’t charge monopoly prices. Indeed, the people who run social media firms may do many unsavory and alarming things, but that doesn’t make them monopolists

Monopolizing the Supply, Then Charging Monopoly Prices

The first step in gaining a monopoly involves gaining a large amount of market share in a certain industry. Although monopolists are often thought of as gaining this market share through dishonest means, this is not necessary. A firm could gain immense market share by simply doing a better job of anticipating what the consumers want. But the sinister next step is always the same: the “monopolist” uses its exalted position in the marketplace to force competitors out of business and keep others from entering the market. Once this is accomplished, the monopolist can control the availability of goods and services and charge its customers inflated “monopoly prices.” The customers, with nowhere else to go, have no choice in this situation but to pay the higher prices.

Note that in order to charge these high prices, it is first necessary to eliminate the competition so as to control the supply of goods in the market. If a monopolist tries to hike up prices before controlling supply, high prices will invite new competitors to enter the market, and the competition will force prices back down. Put another way, as Ludwig von Mises phrased it: “Monopoly [over supply] is a prerequisite for the emergence of monopoly prices.” 

What Services Do Social Media Firms Deliver?

But before we can determine if social media firms are controlling the supply of services—we must first understand what exactly those services are. 

There is not an easy answer to this because social media firms supply services to more than one group. They supply advertising opportunities to advertisers and sell them access to the site’s users. But social media firms also supply the “social media experience” to users. This is provided to users in exchange for their personal data.

Because most recent criticism of social-media firms focuses on these firms supposed abuse of users through “censorship,” we’ll focus on the service offered to users: the opportunity to engage in communication and sharing of information with other users within the confines of a specific social media platform.1

Are Firms Controlling Supply?

If social media firms are monopolists, then they must be in a position to control the supply of these social media services. That is, they can control whether or not a potential user can access the social media experience, which involves being able to communicate with other users.

It is clear that in some cases users are indeed prevented from fully using these services when banned from certain platforms, or limited in what they can share with other users. 

In these cases, the banned user must use other providers. A user who is banned from sharing videos on YouTube must share videos on Vimeo or Bitchute instead. A user who is banned from Twitter must use Facebook or Gab to obtain similar services.

But even assuming there is a secret alliance between Facebook, Twitter, and YouTube for banning certain types of people, has this Big Three Alliance controlled the supply of social media as a firm or cartel would do if it enjoyed a monopoly?

In at least one sense, the answer is clearly no. At the moment, there are not legal impediments—at least not above and beyond those that also apply to other firms—that are sure to doom an entrepreneurial newcomer’s effort to join the social media marketplace as a provider. Indeed, we know this because other firms have already entered the marketplace. These firms include Snapchat, LinkedIn, Gab, Parler, Bitchute, Vimeo, and Dailymotion, among others.  Social media users therefore have several options beyond the handful of large firms  that dominate the industry. 

Social Media as “Natural Monopoly”

This fact, however, is insufficient to deter the typical advocate of the Facebook-is-a-monopolist narrative, some of whom claim that once a social media network has a large number of users, it can control supply indefinitely thanks to network effects. This theory was well outlined by John Barrett at Tech News World. Barrett states that a social media network,

like any other network, grows as the number of users increases. It also grows as the amount of information it holds increases. (Finding your long-lost friend’s page is pointless if it says nothing about them.)

In other words, social networks…require a higher level of “investment” from users. They must not only create a list of “friends” but also spend time and energy providing information about themselves.

Alternating between multiple social networking sites entails a greater cost than switching between instant messaging programs. Is the economic “gain” of a single social network great enough [to allow] the market to naturally eliminate all other rivals?

Barrett thinks the answer is yes. In fact, Barrett even thinks a social media company can establish a “natural monopoly” in this manner. That is, he thinks that once one big firm (or possibly one group of big firms) controls the bulk of information about users, it becomes essentially indispensable to users, and thus “other sites will be condemned to niche markets and subsets”:

Social networks, as with many other kinds of networks, are showing a tendency towards a monopolistic market equilibrium that almost by definition makes social networking a “natural” monopoly.

In other words, if two hundred of your close friends are all using Twitter, then you can’t just go over to Gab, because you’d supposedly have to convince many of your friends to go over to Gab as well. That makes it very difficult for other firms to attract users away from the “monopolist” firm.

This all sounds very compelling if one has bought into the idea that natural monopolies are a common problem. The reality, however, is that natural monopolies don’t actually exist. Historical experience has shown that in the absence of government intervention preventing firms from entering the marketplace, monopoly power cannot be maintained.

The MySpace “Monopoly”

Ironically, Barrett himself has supplied one of the most important examples in showing the impermanence of alleged social media monopolies. Barrett’s above analysis about natural monopolies was written back in 2007 in response to the supposed unbreakable monopoly held by MySpace.

Remember MySpace? Between 2003 and early 2008, it was the world’s largest social media firm, with more than 75 million users. At the time, that was a lot.

Barrett appears to have assumed that unless governments intervened,  MySpace would be a monopolist essentially forever. That’s not how things turned out. Other firms came along, provided a service that many social media users found more attractive, and beat MySpace at its own game.

The notion that users could never afford to abandon MySpace due to network effects was obviously wrong. Similarly, the claim that users today can never afford to leave Facebook of Twitter is on similarly shaky ground. 

Are Social Media Firms Charging Monopoly Prices?

Now having determined today’s social media firms do not actually control supply, we come to the second key issue in identifying a monopolist: is the firm charging monopoly prices? This is hard to say, because users do not “pay” for social media services using money.

Users gain access to the social media network by handing over their personal information to social media firms. The more data the platforms have on their users, the more the platforms can charge advertisers. In a similar way, consumers of television shows “pay” for broadcast TV stations by making themselves available to the TV stations’ advertisers for a time.

We can’t say there is a market price in the traditional sense for using these services. On the other hand, users do pay in terms of opportunity cost and—in the case of social media—with personal information.

Does any social media firm charge monopoly prices even by this loose definition? The answer here would appear to be “no” since it stands to reason that if these firms were true monopolies, in addition to collecting user data, they would also demand fees for services rendered. After all, if the firm can charge monopoly prices, it can charge prices far above and beyond the market price. If users truly had nowhere else to go, they’d surely be willing to pay almost whatever fee these firms demanded to allow access to one’s social media accounts.  Yet, this hasn’t happened. 

Barrett’s claims about network effects are correct to an extent. But, ultimately, platforms can only delete so many user posts—or otherwise deliver a suboptimal experience—before users begin to leave in larger and larger numbers. Once this happens, a social media firm is in danger of suffering the fate of MySpace. 

An Industry of Partisans and Deceivers

The fact that these firms are not exercising monopoly power over users, of course, doesn’t illustrate that these firms are honest, heroic, or otherwise laudable. As with the established news media, the leadership at these firms use their power as publishers to push for their own political agenda. Moreover, for years, the big social media firms have downplayed and hidden the facts about the extent to which they harvest the personal data of users. It was only after 2012, when Congress began questioning these firms publicly, that the firms admitted that users “pay” with data. Mark Zuckerberg has lied in public testimony, claiming that users have total control over their own data. He also lied when he denied that Facebook was eavesdropping on users’ phone calls. Moreover, social media companies have falsely claimed for years to be open forums devoted to self-expression and free speech. This was never true. 

None of this, however, proves that these companies are monopolists. 

  • 1. While some pundits have spoken out against social media firms’ alleged monopolistic abuse of advertisers, we’ll ignore that aspect of the social-media business model in this article. Most recent controversies over social media stem from alleged abuses of social media users, rather than advertisers.

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