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Evaluating Antitrust Remedies for Platform Monopolies: The Case of Facebook

Posted by on Wednesday, April 26, 2023 in Articles, Volume 76, Volume 76, Number 3.

Seth G. Benzell & Felix B. Chang | 76 Vand. L. Rev. 773

This Article advances a framework to assess antitrust remedies and policy interventions for platform monopolies. As prosecutors and regulators barrel forward against digital platforms, soon it will fall upon courts and administrative agencies to devise remedies. We argue that any sensible solution must include quantification of the welfare effects on a platform’s various constituents. The Benzell-Collis model predicts the effects of proposed solutions on a platform’s profits and the welfare of its users. The model also considers additional aspects of welfare unique to the social media setting, such as digital platforms’ nonmonetary goals, platform addiction, and externalities from platform use.

Applied to Meta’s Facebook, the model captures the nuances of demand for the social network to predict the consequences of reforms such as taxes, divestitures, and user rebates. We estimate the magnitude of effects by calibrating a version of the model through surveys of U.S. internet users regarding their demand for Facebook. This approach is based on the theoretical and empirical literature on multisided platforms from economists, including, most prominently, the Nobel laureate Jean Tirole. We find that breakups which undercut Facebook’s network effects are the most damaging solutions. By contrast, properly designed taxes and user unionization might raise the total surplus of the platform, even without creating more competition. We also canvass other interventions, gauging their abilities to maximize the benefits to consumers of engaging with Facebook.

This Article’s primary contribution is to ground debates over platform monopolies in tangible, quantifiable terms rather than grand, open-ended aspirations. Each of the estimates in our formulation of welfare is subject to pushback, but by embracing quantification, we aim to elevate the theoretical discourse in antitrust. Ultimately, we hope that the model forces remedy designers to confront—and publicize—how they quantify welfare effects upon consumers and, more broadly, society.

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Seth G. Benzell

Felix B. Chang