Digital Dominance and Social Media Platforms: Are Competition Authorities Up to the Task?

Abstract

Social media platforms, as a particular species of digital platforms offering multiple online services and electronic commerce opportunities, have been under increasing scrutiny by competition enforcement agencies in recent years for engaging in allegedly anticompetitive practices. These technology giants have also come under fire for their role in facilitating various anti-social practices that have sowed societal discord and conflict in many different jurisdictions. In this paper, we examine the reasons why undertakings operating in this particular sector of the digital economy have managed to acquire such an exceptional species of “digital dominance” that makes them particularly challenging targets for competition authorities to rein in using conventional competition law frameworks. We then argue that, in light of the conceptual and practical difficulties of relying on competition law enforcement as the primary mechanism to address the problems associated with the behaviour of social media platforms, policymakers should focus their attention instead on tailor-making sector-specific ex ante regulatory frameworks that are better equipped to address the different public and private interests that need to be balanced against each other when evaluating the conduct of these particular digital ecosystems.

Introduction

There is no doubt that social media platforms play a ubiquitous role in the lives and livelihoods of many consumers and businesses in the digital era.1 While originating as a communication tool to facilitate social interactions between individuals through the medium of the internet,2 social media services have evolved into complex ecosystems of digital interactions between a diverse range of stakeholders, including advertisers, digital entertainment service providers, and anyone seeking to connect with individual social media account holders.3 In most parts of the world, Facebook users can engage with not just their “friends”, but also with retailers, celebrities, political officeholders, and any organisation which has set up a Facebook account. Beyond this, Facebook (now rebranded as “Meta”) has also developed other services to help their users, inter alia, find opportunities for employment or romance through online channels. It also partners with gaming companies to allow Facebook users to access online games from the Facebook platform. Similarly, behind the “Great Firewall”,4 Chinese users have access to social media platforms such as WeChat, Sina Weibo, and Tencent QQ which collectively possess the same, if not more, functions than both Facebook and Twitter combined.5 In recent years, the rapid expansion of social media platforms on mobile device applications into adjacent fields of digital finance and other platform-based services, as exemplified by the explosive growth of the WeChat application and its plethora of integrated app-based features in China, has led to the rise of the “super-app” as an aspirational business model for other digital platforms hoping to expand their application ecosystems.6

This intermingling of the different facets of the personal and public lives of social media users – as friends, followers and consumers – and the integration of electronic commerce (“e-commerce”) into social media platforms have significantly altered the relationship dynamics between businesses, their customers, as well as their rivals. The speed and scale at which digital interactions occur on social media platforms between these different groups of account holders, and their respective social networks, has fundamentally altered the competitive landscapes of many industries. This is readily apparent from the disruptive impact of social media platforms that have conquered online advertising markets at the expense of advertising revenue-dependent news/journalism enterprises.7 Advertising revenue accounts for a very substantial part of the economic success of popular social media platforms,8 whose ability to accumulate and monetise vast quantities of their account holders’ personal data gives them unique commercial advantages which cannot be replicated by other undertakings.

While social media platforms may have achieved their positions of economic success through their investments in innovative technologies and their pursuit of shrewd business strategies, there has been a growing discomfort amongst competition authorities and policymakers over in the ways in which they have reinforced their economic positions in online markets, as well as how they have wielded their outsized degree of market power they have acquired within a relatively short span of time.9 As the sole “gatekeepers”10 of their respective networks of account holders, with proprietary control over the technological conduits through which so many different groups of individuals and undertakings interact, social media platforms wield immense influence over the socio-economic fabric of their digital ecosystems. Through their round-the-clock surveillance of the social interactions between their account holders, these platforms are able to extract endless streams of valuable personal data that can be monetised as inputs for the provision of other data-dependent digital services. Like other data-collecting digital platforms, social media platforms are naturally positioned to expand into adjacent markets to expand their pre-existing empires into broader digital ecosystems that further reinforce their positions of economic strength. However, social media platforms also exhibit a particular combination of characteristics that set them apart from other digital platforms such as, for instance, e-commerce market platforms, ride-hailing platforms, or food-delivery service platforms. It is submitted that, cumulatively, the following characteristics of social media platforms give rise to complex market-power-related concerns of such a magnitude that require special scrutiny from policymakers concerned about the far-reaching economic and socio-political ramifications of their activities: (i) the scale of their operations across national boundaries; (ii) the massive volume of personal data accessible to them; as well as (iii) the ability of such platforms to capture substantial proportions of the time and attention of their users.

In this paper, we seek to examine whether social media platforms should be regarded as wielding a relatively distinctive form of “digital dominance” that set them apart from other large e-commerce players in the digital economy, making them especially slippery targets for antitrust scrutiny by national competition authorities. While several competition authorities in developed jurisdictions have, in recent times, either initiated enforcement proceedings against social media platforms,11 or worked towards updating their existing competition laws to address the general obstacles encountered when applying conventional competition rules to online markets,12 it remains highly debatable as to whether competition law and policy frameworks should even be regarded as the main source of legal oversight within this particular sector of the digital economy. Given that non-competition-related policy considerations also feature prominently in many of the contemporary controversies that surround the conduct of social media platforms, a strong case can be made for greater supervisory oversight of such enterprises to be vested in regulatory agencies which are better positioned to assess these adverse impacts and to respond with suitable ex ante and ex post measures that go beyond the limited remedies traditionally employed by competition authorities.

Social Media Platforms in the Crosshairs of Competition Authorities

As a global leader in the provision of social media services to consumers around the world, Facebook has received considerable scrutiny from multiple national competition enforcement agencies. In the United States, it was accused of violating  Sec. 2 of the Sherman Antitrust Act of 1890 by illegally monopolising the market for “personal social networking services” by acquiring Instagram and WhatsApp while they were start-up companies, as well as adopting policies to prevent interoperability between its social media network and other software applications in order to thwart its competitors.13 In Germany, Facebook is appealing against decisions taken by the Bundeskartellamt (the German Federal Cartel Office, “FCO”) that it has abused its dominant position in the German market for social media services by deploying exploitative personal data collection and processing practices that limit the control consumers have over the use of their data (in violation of the EU Data Protection Regulation 2016/679), raising entry barriers for rivals (by preventing users from switching to alternatives via lock-in effects) and leveraging upon its market power to impair competition in the online advertising market.14 In Australia, the Australian Competition & Consumer Commission has wrangled with Facebook to pressure the social media platform to negotiate news licensing deals with media publishers to redistribute part of the online advertising revenues that Facebook has captured at the expense of traditional news journals.15 At the same time, enforcement action was taken against Facebook for violating consumer protection laws by engaging in deceptive or misleading conduct towards consumers who signed up for a virtual private network service, offered by one of Facebook’s subsidiaries, to protect the privacy of their online activities when, in fact, such data was shared with Facebook for its marketing activities and to help it identify potential future acquisition targets.16

For all the attention that antitrust authorities have given to Facebook and the problems that flow from having so much market power concentrated within the hands of one social media platform, the broader question that is worth closer scrutiny is whether or not competition law frameworks should be entrusted with the primary responsibility of circumscribing the behaviour of such undertakings. Were these attempts at competition law enforcement merely quick-fix responses to particular complaints made against Facebook, without systematically addressing the underlying – and perhaps intractable – market characteristics of its business activities that have empowered it to engage in these (and various other) forms of objectionable conduct? It is submitted that highly popular social media platforms enjoy such a particularly complex species of “digital dominance” that national competition authorities, applying orthodox principles of competition law and policy, cannot be reasonably expected to exercise adequate control over the full range of harms produced by the wheeling and dealings of these digital behemoths. Instead, effective legal checks on the behaviour of social media platforms require the development of sui generis sector-specific legal frameworks, incorporating legal norms for which there is broad consensus between the different jurisdictions in which these digital platforms operate, to tackle the entire gamut of concerns that have emerged in a coherent manner, several of which involve matters which fall outside the relatively limited purview of competition law and policy.

The discussion below seeks to explore this issue by examining, firstly, the distinctive characteristics of social media platforms which have enabled them to acquire such extraordinarily entrenched positions of economic strength; secondly, the conceptual challenges which these characteristics, cumulatively, pose to competition authorities seeking to apply orthodox principles of competition to restrain the problematic activities of such undertakings; and thirdly, the complexity of the legal and policy concerns surrounding the conduct of such undertakings and the limitations of ex post facto enforcement activity by competition authorities.

Deconstructing the “Digital Dominance” of Social Media Platforms

In this paper, “digital dominance” will be used to describe the position(s) of market dominance occupied by undertakings (social media platforms, in particular) operating in online markets, where the market power they possess arises from a distinctive combination of the following characteristics: (i) the operation of different multi-sided markets operating simultaneously around an integrated digital platform; (ii) strong direct and indirect network effects; (iii) extensive economies of scope and scale; and (iv) the automated collection and processing of vast quantities of personal data, through the use of computer algorithms. While some of these characteristics are also possessed by other technology giants operating primarily in digital markets (including internet search engines, online video-streaming and sharing service providers and electronic commerce platforms), we submit that the extent and collective effect of these characteristics is particularly magnified in the context of social media platforms. In this section, we will examine how and why social media platform operators occupy particularly entrenched positions of “digital dominance” that make them distinguishable from other online platforms operating in other industry sectors of the digital economy.

Multi-Sided Platforms and Market Complexities

While every digital platform seeks to connect two or more distinct groups of users with one another, there are significant differences in the complexity of their organisational structures depending on their functionality and intended purposes. Dating platforms connect parties seeking to interact with each other on a romantic basis. Shopping platforms connect sellers with buyers interested in retail purchases. Food-delivery platforms connect eateries with diners who want to consume their meals away from dining establishments. Mobile application stores connect mobile telephone owners with application developers that may provide any of the services identified above, as well as an infinite range of other informational or entertainment services. Social media platforms share this feature of facilitating interactions between different groups of people, but with a substantially broader spectrum of stakeholders interacting with individual account holders. Social media users interact with each other – family, friends, acquaintances – as well as others who might welcome their interactions, including celebrities, politicians, and other public figures. Social media users also interact with businesses with social media accounts, in their capacity as actual or potential customers; they are also targeted by advertisers and interest groups seeking to recruit them. Furthermore, individual social media users also transact with application developers who supply gaming or other digital entertainment services via the social media platform.

Unlike other multi-sided digital platforms, which may operate primarily as instruments which enable users on one side to connect themselves with market players on another side, social media platforms facilitate more complex interactions in multiple directions, with different groups of users seeking to exert influence on each other simultaneously. Businesses seek to connect with their customers, as well as influencers who their customers admire. Individuals seek to interact with members of their social circle, while also being influenced by the opinions of clubs, societies and interest groups that can shape their attitudes towards businesses and public figures. Purchase-related decisions made by individual account holders are thus guided by a multiplicity of influences channelled through the social media platform, diminishing the importance and impact of the rational price-related determinants of substitutability. In other words, social media itself influences the market behaviour of consumers, with personalised algorithms curating the purchasing options that are presented to individual account holders and framing their perceptions of market players. Social media platforms can exploit the emotions, loyalties and convictions of consumers far more effectively than targeted advertisements deployed by sellers on e-commerce or search engine platforms. Social media shapes the relationships between consumers and the undertakings vying for their attention and customs, by promoting behaviour bias, personalisation bias and popularity bias.17 This fragments markets into smaller units where what is consumed may be significantly determined by factors other than the price or quality of what is supplied by undertakings.18 It is thus submitted that these distortive effects, which are generated by the complex interactions between the many different sides of popular social media platforms, are an important characteristic that distinguish this category of undertakings from other digital platforms. As one commentator has observed:

One obvious problem with studying the phenomenon of social media is that it involves a multitude of probing angles that each bring along a different academic expertise … [W]e need insights from at least six disciplinary perspectives – information technology, social science, humanities, economics, law, and political communication – to open up a panoramic view onto social media.19

What this means is that the operational dynamics of the different sides of the multi-sided markets associated with social media platforms cannot be fully understood by those seeking to impose legal or regulatory restraints unless they are prepared to engage in a multi-disciplinary investigation into the multiplicity of socio-cultural influences that account-holding consumers are exposed to in the course of using such platforms. An accurate evaluation of the extent of the “digital dominance” wielded by a social media platform requires proficiency in evaluating these influences on the decision-making processes of social media users, complex forces that defy conventional assumptions of economic rationality and which are likely to require far more sophisticated analytical tools that are not within the conventional competence of competition authorities.

Strong, Self-Reinforcing Direct and Indirect Network Effects

Competition authorities from jurisdictions where social media platforms have become very popular amongst significant segments of the population have recognised that undertakings which control such digital markets enjoy a species of economic influence that is quite unlike that found in other digital platforms.20 The extremely large base of social media account holders is explicable on the basis of the strong network effects associated with the nature of social media services, where most individuals use the platform to communicate with their respective friends and associates.21 These direct network effects produce strong incentives for other people within the same social circles as existing social media account holders to set up accounts with the same social media platform,22 such that new users and prospective users are far more likely to choose an existing social media platform that their family and friends are already using rather than a newer rival social media platform.23 This large user base, in turn, becomes an attractive target for undertakings on other sides of the multi-sided market who are seeking to promote their businesses, which triggers indirect network effects that further entrenches the market position of well-established social media platforms.24 The combination of these direct and indirect network effects is another distinctive feature of social media platforms that set them apart from other digital platforms, where indirect network effects typically play a more significant role. More importantly, the digital dominance of social media platforms which results from these features are self-reinforcing – network effects which promote the growth of the social media platform also continuously nourish and sustain indirect network effects, the net result of which is to constantly raise barriers to market entry for potential rivals and to continuously entrench the market power of the incumbent undertaking.25

Extensive Economies of Scale and Scope

Highly successful social media platforms, particularly those with transnational footprints, enjoy tremendous economies of scale and scope.26 They operate in, or periodically expand into, multiple adjacent markets offering complementary services that leverage upon their expansive network of existing platform users and reputation as a social-networking site. While other digital platforms may have similarly large numbers of users and account holders, they are unlikely to have such extensive access to the intimate aspects of the lives of their individual account holders. Given that social media platforms facilitate online interactions that potentially straddle the private, professional and public lives of their users, the very nature of such enterprises gives them potentially unlimited opportunities to expand their suite of service offerings far beyond the mere provision of social media services. From online gaming to shopping,27 job searching to dating,28 the commercial potential for social media platforms to offer new services to their users is certainly much stronger as compared to other digital platforms because users are often encouraged to incorporate such “social” activities into their interactions with each other on social media. For example, in the context of online gaming, a player may be encouraged to share the link to the game via his social media accounts, in exchange for certain in-game rewards. This inherent ease in integrating new services within social media platforms or assimilating them into a digital ecosystem controlled by the owners of social media platforms can be amply seen with the development trajectories of highly successful social media platforms such as Facebook, Instagram, Twitter and WeChat, which are briefly introduced below to illustrate the ease with which social media platforms have been able to progressively enlarge the scope of their service offerings and seamlessly expand their operations into adjacent markets.

Facebook/Meta

Facebook was started in February 2004 with the initial goal for Harvard University students to connect with one another.29 The initial version of Facebook was designed simply – there was only a wall feature which enabled account holders to post messages to their friends on their “Facebook Wall”; new features that were subsequently added included the ability to also post photographic images on this “Wall” (in 2005), as well as the ability for users to chat with one another in real time via text messages (in 2008) and, by 2011, this messaging function was developed into an independent smartphone application known as Facebook Messenger.30

From 2011 to 2021, besides rapidly growing the suite of services offered on its main platform,31 Facebook also acquired new platforms and products, such as Instagram and WhatsApp,32 and successfully integrated these new acquisitions with its pre-existing services. For example, account holders can log into Instagram through an existing Facebook account,33 seamlessly share a story initially posted on Instagram with Facebook Stories (a feature on the Facebook platform),34 with rumours of future plans for further assimilation between these commonly owned platforms in the works.35

These business expansion strategies have also given Facebook significant first-mover’s advantage in nascent markets adjacent to its core social media platform business. This is demonstrated by Facebook’s 2014 acquisition of Oculus,36 a niche technology firm, with many observers then pointing out that this was done in furtherance of Facebook’s longer-term strategy to eventually dominate the emerging virtual reality market.37 On 28 October 2021, these predictions were realised when the Facebook company formally changed its name to “Meta”, reflecting the company’s new focus on creating a “metaverse” based on elements of virtual and augmented reality “blended” with the physical world.38 In the words of the renamed company:

The metaverse will feel like a hybrid of today’s online social experiences, sometimes expanded into three dimensions or projected into the physical world. It will let you share immersive experiences with other people even when you [cannot] be together – and do things together you [could not] do in the physical world. [It is] the next evolution in a long line of social technologies, and [it is] ushering in a new chapter for our company.39

Facebook’s contemporary status as a dominant player in the social media market is internationally recognised amongst antitrust regulators, despite the fact that it is officially banned in certain jurisdictions such as China.40 In 2021, the Facebook platform had a total of 2.91 billion monthly active users globally and the entire company (Meta) brought in approximately US$115 billion in advertising revenue.41

Instagram

Facebook’s massive revenues are supplemented by its income from Instagram,42 a social media platform that was officially launched in the Apple App Store on 6 October 2010 and acquired shortly thereafter in April 2012 by Facebook.43 Unanimous approval for this merger was given by the United States Federal Trade Commission.44 Like Facebook, Instagram enjoys extensive economies of scope and scale and, today, it has many features that are popular with its younger demographic of users.45 One of the significant features of Instagram’s social media platform is “Stories” – a tool which allows users to share short videos and photographic images on a time-limited basis; such content is programmed to “disappear” after 24 hours and incentivises followers to check for new content from the accounts they subscribe to on a regular basis. The Stories feature was first pioneered by another social media platform, Snapchat, which Facebook had unsuccessfully tried to acquire,46 and eventually became the biggest driver for Instagram’s overall success.47 More recently, Instagram repeated this strategy of replicating popular features pioneered by its rivals when it introduced “Reels”, a video-sharing service very similar to the one offered by TikTok.48 As of 2021, Instagram was reported to have reached a new milestone of 2 billion monthly active users globally, according to employees with knowledge of the company’s key metrics.49 It is unclear how much Instagram brings in through advertisement revenue, although some news outlets have put that figure at US$26 billion. It is worth noting that this only reflects the estimated advertisement revenue within the United States.50

Twitter

Twitter provides another example of the ease with which social media platforms are particularly adept at adapting their service offerings, as well as integrating new services that enable them to expand into adjacent existing markets or creating new markets from scratch. Officially launched in 2006, Twitter was originally conceived as a communication tool to be used between friends; however, by mid-2007, the platform was beginning to receive significant attention from politicians such as Barack Obama, leading international media outlets and celebrities.51 This, in turn, transformed Twitter into the “nervous system for the planet” and a “global newsroom”,52 which attracted more users to the Twitter platform, thereby enabling Twitter to pursue an advertisement-driven business model.53

Over the years, Twitter has tried introducing its own version media-sharing functionalities similar to those available on rival social media platforms, as well as its own e-commerce shopping feature, with varying degrees of success.54 A relatively recent feature that Twitter introduced in 2021 is “Spaces”, which enables Twitter accounts with 600 or more followers to host live audio conversations – a potentially monetisable feature not (currently) available from Facebook and Instagram.55 Likewise, it has also recently introduced “Super Follows”, a function which enables account-holders to earn a monthly revenue by sharing subscriber-only content with their followers on Twitter.56 In 2021, Twitter had 217 million in daily monetisable active users globally,57 and had a total revenue of US$5.08 billion, of which US$4.51 billion was derived from advertising.58 These figures illustrate the degree to which social media platforms are able to quickly grow and adapt their ecosystems – whether by imitation or by innovation – which distinguishes them from other digital platforms.

WeChat

A similar trend can also be observed with the development trajectory of the social media landscape in China, where the government exercises very high levels of control over the internet and digital service providers. This is also known as the “Great Firewall”. WeChat was first conceived in 2010 as a messenger service which allowed its users to send free short messages and avoid the fees charged by telecommunications companies.59 As such, the functional origins of WeChat were quite different from Western social media platforms, in that it only took on the functions of a social media platform in 2012 when Facebook-like features that enabled media-sharing were introduced. Since then, WeChat has continued adding features which extend beyond the traditional services associated with social media platforms. This includes, inter alia, enabling account holders to pay bills using the platform, play computer games, hail transportation services, and allowing the development of “sub-applications” known as “mini-programs” to take place on the WeChat platform (i.e. a platform that supports further sub-platforms).60 Because of these extensive features, the WeChat application has been frequently referred to as a “super-app” within China.61 Today, the use of WeChat is so pervasive that the platform “has become one of the most powerful tools in Beijing’s arsenal for monitoring the public, censoring speech and punishing people who voice discontent with the government”.62 This dominance was further enhanced during the COVID-19 pandemic as Chinese companies and schools flocked to WeChat Work, a communication tool for business that is integrated with the WeChat application.63 The Chinese government has also tapped on the platform’s prevalence to aid in its contact tracing efforts, and the Chinese population, in general, are required to have the application as it provides “health codes” that are required for them to enter residences, office buildings. and accessing public transportation.64 In other words, an individual residing in China would find his life nearly unliveable without registering for a WeChat account. As one commentator puts it aptly, “the [application] has so thoroughly permeated everyday life that shutting it off would be like giving up water or air”.65 As of 2021, WeChat had a total of 1.27 billion monthly active users globally,66 and a total revenue of RMB 560 billion.67

WeChat’s undeniable success in rapidly expanding its operations into multiple adjacent service markets within a relatively short timeframe thus demonstrates the natural propensity for social media platforms to ostensibly acquire very deeply entrenched positions of digital dominance, even in a jurisdiction characterised by a relatively unique set of socio-political and economic circumstances such as China.

Continuous Access to Vast Amounts of Highly Personalised Data

By providing channels of communication for individual account holders to express their thoughts, opinions and preferences to each other, social media platforms are better positioned than most digital platforms to gather vast amounts of an extremely valuable resource – personal data comprising granular details of the interests, opinions, preferences and attitudes of its users from their online interactions.68 Highly personalised customer information is continuously collected and processed by the artificial intelligence-driven algorithms deployed by social media platforms.69 The data derived can be used as an input for targeted advertising purposes and other tailored forms of customer or user engagement.70 Social media platforms typically retain exclusive control over this resource and are, consequently, able to offer a level of targeted advertising services to their account holders that few, if any, other digital platforms are able to offer. It is thus unsurprising that one of the core business strategies of social media platforms is to develop features that encourage users to spend more and more time within their respective digital ecosystems – the deeper the level of “user engagement” with these digital platforms, the greater the amount of personal data that can be collected from these users.71

Being able to curate the kinds of media content that individual account holders are exposed to means that social media platforms also have the power to potentially shape the attitudes and opinions of its users.72 This puts social media platforms in the unique position of influencing the behaviour of its users at different levels, including various factors which affect their purchasing decisions, which can result in all sorts of distortions to the competitive landscape.73 This position of influence over its account holders extends far beyond the virtual realm of e-commerce into the socio-political landscapes of the real world.74 Calls for greater regulation of social media platforms have been made from different quarters, with concerns ranging from how they contribute to the polarisation of public opinions relating to politically divisive issues, the spread of misinformation and “fake news” as well as their impact on the mental health and well-being of vulnerable users.75 At the same time, the commercial success achieved by social media platforms in cornering digital advertising markets has also produced profoundly adverse economic effects on the commercial viability of the traditional news journalism industry, which has serious ramifications for liberal democracies in which this sector plays a vital role – this illustrates the inextricable nexus between the competition-related issues encountered in the context of social media platforms and the much broader, and complex, socio-political problems that have arisen, in the offline world, from their extreme positions of digital dominance.76

Digital Dominance as a Confluence of Competitive Advantages

Putting together all the characteristics of social media platforms that have been discussed above, the picture which emerges is that of a very small number of extremely large and technologically sophisticated undertakings dominating online markets for the provision of social media services, with clear incentives to build upon their entrenched positions of market strength and expand into adjacent revenue-generating markets. While every digital platform might exhibit, to varying extents, several of these characteristics, it is submitted that digital platforms operating in other market settings are unlikely to attain the same sort of “digital dominance” – in terms of scope, complexity or durability – enjoyed by the social media platforms described above. To be clear, we are not asserting that social media platforms enjoy “greater” digital dominance than other digital platforms – making such a comparison would not be fruitful. Instead, we submit that the combination of sector-specific characteristics of the social media industry which contribute to their different facets of market power supports the conclusion that this digital dominance is qualitatively distinguishable from conventional iterations of market power wielded by offline enterprises and other digital platforms.

So while classic competition law principles of “dominance” that have been developed in the context of brick-and-mortar markets might be capable of adaptation for use in the context of online markets and digital platforms,77 the specific nature and character of the “digital dominance” enjoyed by successful social media platforms may call for a fundamentally different approach towards legal scrutiny of this industry sector. This extraordinary species of market power, which straddles two or more markets, that these social media platforms are able to enjoy, especially in market segments populated by consumers who are very active social media users, is attributable to a confluence of competitive advantages and market characteristics not found elsewhere in other e-commerce markets: highly interactive multi-sided platform markets comprising many different groups of platform users; mutually self-reinforcing direct and indirect network effects; expanding private ecosystems of business operations straddling multiple adjacent markets; and with an enormous customer base from whom copious quantities of personal data may be tapped on a continuous basis.

The implications of recognising the distinctive nature of this species of “digital dominance” associated with social media platforms are twofold. Firstly, that the markets in which social media platforms operate are potentially more vulnerable than other sectors of the digital economy to these undertakings pursuing business strategies that entrench their positions of market strength, progressively (and possibly irreversibly) making it harder for actual or potential competitors to challenge their incumbent dominance. These risks will be briefly surveyed in Part 4 of this paper. Secondly, that an effective legal response to the problems created by the conduct of these undertakings may require a sui generis legal and regulatory framework that goes beyond the traditional competence of competition authorities. Part 5 of this paper will explore the extent to which competition authorities might be ill-qualified or unsuited to take on the primary responsibility of reining in these social media platforms.

Antitrust Concerns Arising from the Conduct of Social Media Platforms that Occupy Positions of “Digital Dominance”

That social media platforms occupy positions of digital dominance is not objectionable per se. Mere possession of market power by any undertaking, however substantial, cannot be regarded as unlawful in and of itself. Neither is the mere exercise of market power prohibited by competition law since such undertakings should be prima facie entitled to reap the rewards of their competitive success in the market. Only when the conduct of the dominant undertaking is regarded as abusive of its market power – either in an exclusionary or in an exploitative sense – does the competition law prohibition in Art. 102 of the Treaty on the Functioning of the European Union (“TFEU”) and its equivalents in national competition law statutes become engaged. The perennial difficulty that competition authorities face is, unsurprisingly, to try to determine at which point the exercise of market power crosses the line to become abusive, in the sense that the behaviour causes actual or likely market foreclosure, enough to warrant the imposition of penalties and other legal sanctions.

In this section, we outline some of the possible forms of anticompetitive behaviour that social media platforms might engage in, while the next part of this paper will explore some of the conceptual and practical difficulties which competition authorities might encounter when trying to tackle such behaviour using traditional competition law principles. At this juncture, it is also worth pointing out that many of the questionable actions and activities of social media platforms that have recently attracted the scrutiny of lawmakers from both sides of the Atlantic do not involve direct contraventions of competition rules.78 This in itself demonstrates why no one should expect competition law to shoulder the entire responsibility of addressing all of the problems that have emerged from the explosive growth of social media platforms. However, that such undertakings appear free to exploit their strategic advantages to advance their own commercial interests at the expense of their users, by engaging in these objectionable practices in the first place, is perhaps indicative of the immense levels of unchecked market power they wield in the absence of effective competitive pressures from rivals. That they have continued to thrive, economically ensconced within their positions of market strength, notwithstanding the negative publicity surrounding these very public criticisms of their conduct, might be attributable to the unassailable character of their digital dominance.

Tying or Bundling Practices

A digitally dominant social media platform may seek to entrench its position by foreclosing competition in adjacent markets, taking advantage of its market power in its main sphere of business activity to secure customers in another adjacent market. This erects a competitive obstacle to rivals in the adjacent market. This leveraging of market dominance can take the form of tying or bundling practices, which occurs when one product or service is sold as a mandatory addition to the purchase of another product or service, making the sale of one good to the consumer de facto conditional on the purchase of a different good.79 In 2020, the FCO commenced an investigation into Facebook for requiring users of Oculus to also have a Facebook account if they wanted to access Oculus’ services.80 According to Budzinski, from an economic point of view, “the consumer’s welfare is declining if the users are strategically tightened [sic] to the platform, in a way that they cannot just easily get away from or that there are strategically excessive or even prohibitive costs of switching”.81 This, in turn, makes a dominant firm’s ability to raise strategic switching costs a point of serious concern for both exclusionary and exploitative market abuses.82

Excessive Data Collection and Usage Practices

A second kind of competition concern arises out of the digitally dominant social media platform’s exploitation of its market power by unjustifiably collecting large datasets from its users, giving it a significant competitive advantages over its smaller rivals when developing products or services that require access to such user data. Facebook, for example, collects a wide range of personal data from its account holders, ranging from basic personal details about users when they sign up for their accounts, to information about the devices on which the users access their Facebook accounts (e.g. smartphone, tablet or computer).83 Beyond personal data collected on Facebook’s platform, the FCO has also found that Facebook was capable of collecting personal data off its platform, such as websites embedded with the Facebook “Like” or “Share” buttons. In such cases, the user is not required to click on the buttons before their data is collected.84 This in-depth knowledge about its users, their technological devices, and their browsing activities when they are not using the social media platform allows Facebook to improve its own suite of products, raising the market barriers for new market entrants who, without access to such datasets, might find it more challenging to develop products or services that such users will want to use. These concerns are illustrated in the appellate proceedings by Facebook against the FCO’s 2019 decision that Facebook had abused its dominant position by adopting exploitative practices towards its users that required them to disclose personal data in a manner that was not in compliance with both competition and data protection laws.85

Further, incumbent market players already in possession of such large datasets will naturally be able to monetise a greater extent of such datasets, deriving significant revenue streams from their business partners who require access to data-dependent business tools that social media platforms are in a unique position to provide. The digitally dominant incumbent is well-positioned to fortify its position of leadership by periodically expanding its range of data-driven features and services to platform users, which keeps existing users satisfied and less likely to look elsewhere for these newer services, while at the same time attracting new users from other social media platforms. In the parlance of business strategists, this is known as a “walled garden strategy” and is closely related to the aforementioned conduct of bundling and tying, because users are increasingly “locked-in” to using, for example, Facebook’s platform.86

The leveraging of its digital dominance may also allow a social media platform to adversely influence the competitive process of a neighbouring market.87 In 2021, both the European Commission (“EC”) and the United Kingdom’s Competition and Markets Authority (“CMA”) announced that they would be investigating whether Facebook has “unfairly used its vast trove of data to help Facebook Marketplace … [to] beat out competition”.88 As stated by the EC, the preliminary theory of harm appears to be Facebook utilising precise data on users’ preferences derived from its competitors’ advertisement activities on the Facebook platform to adapt Facebook Marketplace and, thereafter, to outcompete against these same online advertisers in the online advertising market.89 Similarly, the CMA has also announced that it will “examine the competition implications of the Facebook Dating platform” on its rivals such as Tinder and OKCupid.90 This latter investigation stems from the fact that Tinder and OKCupid have to pay to acquire users through Facebook Ads (and all the benefits of the data trove in the Facebook Ads algorithm), which Facebook Dating gets for free.91

Gatekeeping Restraints and Restricting Rivals’ Platform Access

Thirdly, many of the competition concerns related to social media platforms arise from the market gatekeeping role – a defining characteristic of all digital platforms – that social media platforms perform. As gatekeepers, they have proprietary control over the entire ecosystem of their social media platforms, including the networks that market participants in the various downstream markets must connect to in order to engage with platform users. The gatekeeper is thus in a position to decide who to allow on its platform and who to exclude. Further, vertical integration by social media platform operators into downstream markets allows these gatekeepers to also compete directly against non-vertically integrated third-party rivals who have no choice but to accept the terms imposed upon them by the platform owner. This leads to the possibility of practices which discriminate between the platform’s downstream affiliate and its third-party rivals, including the potential for allegations that the platform’s conduct amounts to anticompetitive forms of refusals-to-deal or “self-preferencing”.

For example, Meta is both the owner of the Facebook platform and a market participant in the online advertising market, whose market players partially rely on the Facebook platform to reach their target audiences. As a gatekeeper, Meta can decide which online advertising service providers can access their platform, while unilaterally dictating the terms governing the use of their platform. This has led to competition-related objections that this social media platform is able to contractually impose anticompetitive restraints on its competitors, who are also users of the platform, to advance its own commercial interests and those of its downstream affiliates.92 Such differential treatment between the downstream affiliate of the gatekeeper and its rivals unavoidably results in a distortion of the competitive process because these downstream market players are not competing on a level playing field.

For completeness, allegations of unlawful self-preferencing conduct leading to a distortion of the competitive process are not unique to social media platforms, with the EC recently taking issue with Apple for compelling music streaming application developers to distribute their applications via Apple’s App Store, and from preventing these developers from informing iPhone and iPad users of cheaper alternative methods for making their purchases.93 As a preliminary objection, the EC took the view that Apple’s conduct distorts competition in the market for music streaming services by raising the costs of competing music streaming application developers, by charging a 30% commission fee on all membership subscription fees earned through rival applications.94 Likewise, the EC found Google guilty of systematically giving its own comparison shopping service greater prominence in Google’s own search engine, while demoting their rival’s comparison shopping services.95 According to the EC, this resulted in a distortion of the competitive process on the comparison shopping market because giving such preferential treatment, in terms of search results, to Google’s own comparison shopping service allowed the search engine’s downstream affiliate to receive a significantly greater share of the internet traffic coming from Google’s search engine to the detriment of rival providers of comparison shopping service.96

Acquisitions of Potential Competitors and Future Challengers

Another source of competition concerns arising from the behaviour of digitally dominant social media platforms relates to their propensity acquire of nascent start-ups that have been identified as potential sources of competitive pressure on their businesses in the future. In essence, the theory of harm underlying such conduct is this – while such conduct may not be, at the time of the impugned corporate acquisitions, immediately harmful to competition, the effect of such transactions is to prevent the emergence of an independent competitive force that could (or would) have exerted restraints on the future market power of the dominant acquirer. Such antitrust concerns are illustrated by the parallel antitrust lawsuits which were brought by the United States Federal Trade Commission and various state antitrust enforcers against Facebook for alleged violations of  Sec. 2 of the Sherman Act, based on Facebook’s acquisition of Instagram and WhatsApp (in 2012 and 2014, respectively), where Facebook was accused of illegally monopolising the market for “Personal Social Networking Services”.97 However, as will be elaborated further below in Part 5.2.4, it is entirely arguable that there is actually a rational commercial justification for making such forward-looking acquisitions in this business sector, where younger generations of social media users are almost naturally going to insist on using social media networks that are different from older generations, making it imperative for social media platforms to make such acquisitions in order to ensure the future viability of their business operations.

Should Competition Authorities Be Tasked with the Responsibility of Addressing the Problems Arising from the Conduct of Digitally Dominant Social Media Platforms?

Having explained why we believe social media platforms possess a complex and extreme form “digital dominance” that distinguishes them from other digital platforms and surveyed the range of potentially exploitative and exclusionary strategies they might adopt in the course of maintaining or strengthening their positions of market strength, we now turn to the broader question of how much reliance can or should be placed upon competition law enforcement agencies to respond to these concerns. In this section, we examine the obstacles and challenges facing competition authorities seeking to apply conventional competition law principles to delineate the parameters of acceptable conduct for social media platforms. We will also consider the inherent limitations of relying on competition authorities and their ex post enforcement model as the primary watchdogs for social media platforms, as opposed to a sui generis sector-specific form of ex ante regulation. Collectively, these difficulties with relying on competition law prohibitions as the principal legal tools to regulate the conduct of social media platforms creates risks of over or underenforcement, ultimately to the detriment of consumers and the competitive process.

The first, and most obvious, difficulty with the ex post enforcement of the competition rules against the conduct of these highly sophisticated and well-resourced undertakings is the time that would have elapsed between the impugned conduct and the final legal response after all avenues of appeal have been exhausted. This delay in enforcement action is explicable in part by the second difficulty, which relates to various conceptual challenges that enforcement authorities face when trying to apply conventional competition law principles to digital market settings. Thirdly, effectively tackling the harms arising from the objectionable behaviour of social media platforms will require competition authorities to address wider policy issues that fall outside the scope of their professional expertise, and to make interventionistic remedial responses that go well beyond the imposition of financial penalties for competition law infringements and stop-orders.

Inevitable Delays Encountered When Enforcing Competition Law Prohibitions Against Social Media Platforms

Given the ex post enforcement model of traditional competition law frameworks, where infringement liability has to be first established by a competition authority before penalties and other remedies can be imposed, any legal action taken against the allegedly anticompetitive conduct of a digitally dominant social media platform will inevitably require several years to reach completion. This may be the equivalent of several technological lifetimes within the digital economy that these undertakings operate. Competition authorities who engage in lengthy decision-making processes and encounter lengthy appellate proceedings may find that, even if they are able to eventually demonstrate that a dominant social media platform’s objectionable conduct is anticompetitive, the harmful effects of such conduct on the competitive process cannot be effectively erased and rapid technological progress in the meantime has diminished the practical significance of their enforcement actions.

For example, in a long-drawn dispute involving another type of digital platform, the EC’s infringement decision in Google Shopping98 took nearly seven years to be finalised, and another four more years for the General Court of the European Union to decide Google’s appeal.99 Yet, this is not the end of the matter, with Google indicating that it would make an appeal to the European Court of Justice.100 The German FCO’s own investigation into Facebook concerning its abuse of dominance by imposing onerous terms and conditions on its users commenced in 2016,101 and is still undergoing the appeals process.102 Depending on whether its practices are ultimately adjudicated to be anti- or pro-competitive, these lengthy timelines could either further entrench103 the digital dominance of an incumbent social media platform, or can stifle it from competing as proactively as it might otherwise want to because of its ongoing entanglements with a competition enforcement agency.

The importance of timely legal intervention prominently featured in the recent amendments to the German Act against Restraints of Competition, where Germany introduced an expedited appeals process for platforms with “paramount cross-market significance” which includes social media platforms.104 Briefly, Sec. 73(5) of the Act against Restraints of Competition states that the German Federal Court of Justice, the apex court in Germany, “shall decide as the court of appeal in the first and last instance on all disputes against decisions of the Bundeskartellamt”.105 The legislative intent behind this new provision is to shorten the duration of legal proceedings concerned with conduct that impacts the digital economy, and to quickly curb the market power of large digital platforms.106

However, while the introduction of Sec. 73(5) into the Act against Restraints of Competition is theoretically sound, observers have noted that its utility, in practice, will unlikely result in more expeditious antitrust proceedings.107 The reasons are two-fold. Firstly, the German Federal Court of Justice remains under a duty to establish facts, as the court of first instance, and this is a task that it may be ill-suited to carry out given that it primarily serves an appellate function within the German legal system.108 Secondly, such an arrangement remains open to a constitutional challenge – namely, that there has been no “effective legal protection”, as mandated by the German Constitution, when a single court serves as both the courts of first, and final, instance.109 Given that any decision by the FCO remains enforceable even when its decision is being appealed,110 this could potentially leave the targeted social media platform(s) at a commercial disadvantage vis-à-vis its competitors while the appeal is being heard. If it turns out that the subsequent legal appeal by the social media platform is successful, then a situation of antitrust over-enforcement emerges, where the false positive enforcement action originally pursued by the competition authority ends up unjustifiably curtailing the commercial freedom of a market participant to adjust its service offerings or, in more extreme circumstances, producing chilling effects on its innovation efforts.

Intractable Conceptual Difficulties Encountered When Applying Traditional Competition Law Principles to the Conduct of Social Media Platforms

A second set of challenges that competition authorities will face, when trying to regulate the behaviour of digitally dominant social media platforms using ex post antitrust liability tools based on the “abuse of dominance” prohibition, revolve around a suite of conceptual difficulties encountered when trying to apply traditional competition law principles to this field of economic activity. Surmounting these difficulties will require an extensive rethinking of many of the basic concepts at the heart of competition law analysis – including “markets”, “dominance”, and even the meaning of “competition” within this particular industry setting. Resolving these difficulties will most likely involve protracted debates within, and between, legal and economic experts, perhaps making it sensible for policymakers who recognise the urgency of intervention to tailor-make sui generis legal frameworks to regulate these particular digital platforms instead.111 Some of the conceptual difficulties discussed below apply to digital platforms in general – such as those related to the market definition process – while others are particular to the industry-specific context of social media platforms.

Market Definition: Can the “Markets” in which Social Media Platforms Compete Be Satisfactorily Defined?

Market definition lies at the heart of traditional competition law analyses as it provides a rational basis for identifying market power and assessing the effects of the impugned conduct on the competitive process to determine if there has been an unlawful use (or abuse) of that market power.

One defining feature of social media platforms is its multi-sided character, with complex interactions between multiple markets occurring through the media of these platforms. However, the “small but significant non-transitory increase in price” (“SSNIP”) test was designed by economists for single-sided markets. In its conventional form, this test does not consider both the direct and indirect network effects of a two- or multi-sided market, where the changes in prices on one side of the market will have an impact on demand for the product on that side, but also on the demand for products on the other side of the market.112 The Higher Regional Court in Düsseldorf has observed that the SSNIP test is not “sufficiently conclusive in case[s] of two-sided markets because it cannot adequately capture the feedback effects between different market sides”.113

Furthermore, with social media platforms offering most of their users access to the platform for “free”, the classic SSNIP test for defining markets becomes unworkable because it was “designed for conventional markets where monetary charges apply” and not when “the remuneration takes another form, for example attention or personal data”.114 These issues have been noted by the EC which, while accepting the diminished importance of the methodologies used in identifying the relevant market, has refused to do away with the use of the SSNIP test in the context of multi-sided markets.115 This reluctance can be explained, at least in part, by the practical difficulties of using the alternatives to the SSNIP test. For example, the “small but significant non-transitory decrease in quality” (“SSNDQ”) test – which measures a decrease in the quality of the online platform due to a lack of competition – was considered as an alternative to the SSNIP test by the EC116 and the Chinese Supreme People’s Court.117 However, the SSNDQ test has been criticised as “problematic” given that “quality” is a “general term that can encompass a wide variety of criteria”.118 As Mandrescu observes, “the criteria covered may include privacy, user friendliness, security and others”.119 This can be observed in the social media market, where market participants have developed distinct identities – for example, Twitter’s unique 280-character (previously 140-character) limit stands in contrast with the other platforms, while Instagram’s unique user interface (the squarish pictorial layout it is well known for) is not seen elsewhere. Given the inherently speculative nature of any attempt at measuring changes to the “quality” of services that are zero-priced, it does not seem realistic to try and identify the substitution effects that might occur between rival social media platforms when there is no objective basis for comparison.

Indeed, despite the difficulties inherent in the SSNIP test, the EC nevertheless recommends retaining the test, albeit placing “less emphasis” on the need for market definition, and attributing more weight to the theories of harm and identification of anticompetitive strategies.120 However, downplaying the significance of market definition does not eliminate its necessity if it is ultimately relied upon as the conceptual basis for concluding that the social media platform under investigation has enough market power to meet the legal criterion of “dominance” in the first place.

Perhaps this explains why, despite amending its competition regime, Germany still requires the FCO first establishes an undertaking’s market share,121 with additional factors such as the presence of intermediation power considered in cases of multi-sided markets and networks.122 The intractable issues that have arisen from the continued utilisation of the SSNIP test in defining digital markets have led some to argue that it might be better to reinterpret the meaning of “dominance” with greater emphasis on the “intermediation power” of a digital platform – in other words, to treat “intermediation power” as, ipso facto, an indicator of market dominance.123 However, this simply replaces the difficult issue of defining the relevant markets with the even more uncertain question of when there is sufficient “intermediation power” for a platform to be legally regarded as having a position of market dominance.

Dominance: Should “Dominance” Retain Its Legal Significance and Meaning Within the Context of Social Media Platforms?

Following on from the discussion above, that conventional principles of market definition might not be suited for determining if a social media platform has the market power needed to violate the abuse of dominance prohibition, we now turn to the closely-related question of whether the “dominance” of the market player should continue to be an essential legal criterion within the context of digitally dominant social media platforms because of their ability to control access to entire digital ecosystems. In Germany, for example, the view taken is that the traditional competition law framework is inadequate to deal with non-dominant digital platforms with a gatekeeper position and rule-setting powers.124 This is because the prohibition against unilateral anticompetitive conduct was designed to apply to dominant firms, even though non-dominant digital platforms might engage in similarly anticompetitive conduct by virtue of their status as gatekeepers with rule-setting powers. Hence, for the competitive process to be maintained, digital platforms with intermediation power must be regulated based on their intermediation power, and not dominance.

This shift away from focusing on “dominance” has been confirmed by current legislative developments in the European Union, which has adopted the position that “market processes are often incapable of ensuring fair economic outcomes with regard to core platform services”.125 Recognising that Art. 102 of the TFEU was only applicable to “core platform services” that are “dominant”,126 the European Union has introduced new legislation in the form of the Digital Markets Act127 (“DMA”) to extend its scope of legal supervision to non-dominant undertakings that qualify as digital “gatekeepers”. The objective criteria for a large digital platform qualifying as a “gatekeeper”, irrespective of the platform’s dominance, are as follows: (i) it has a significant impact on the internal market; (ii) it operates a core platform service which serves as an important gateway for business users to reach end users; and (iii) it enjoys an entrenched and durable position in its operations or it is foreseeable that it will enjoy such a position in the near future.128 To this end, the European Union has, inter alia, identified online social networking sites as one type of “core platform services” which will fall into the scope of the proposed DMA.129

Specifically in the context of social media platforms, the meaning of “dominance” needs to be adjusted to reflect the particular characteristics of these enterprises, where progressively expanding digital ecosystems have been built around the data-collecting generators of their respective social media services. Conventionally, “dominance” has been understood within relatively narrow parameters of economic strength – the ability to set prices independently of competitors, customers and consumers without being constrained by competitive pressures of the market.130 Given the zero-price-for-consumers business model commonly employed by social media platforms, a price-centric understanding of “dominance” seems unhelpful; instead, perhaps “dominance” should be understood in terms of the degree of “lock-in” effects which these digital platforms produce when the digital lives of their consumers are enmeshed within particular digital ecosystems. However, whether or not this can be actually measured or quantified remains to be seen.

Recent antitrust scholarship has begun to focus on how the growth of business ecosystems has fundamentally changed competition dynamics in the digital industrial landscape, with relatively novel forms of market power emerging from such business models that have necessitated new regulatory regimes.131 Likewise, it has been argued that because competition which takes place in the context of digital markets occurs as between entire digital ecosystems, rather than individual digital services, antitrust focus should be on the contest between such ecosystems for their users’ attention.132 The argument is, in essence, that competition assessments should pay less attention to the interchangeability of services being offered to them by different service providers when deciding if they should be in the same market and, instead, more attention should be given to whether those service offerings compete with each other for the finite amount time and attention span of their users. From this perspective, digital platforms such as YouTube and Facebook that would not ordinarily be placed in the same market, e.g. either the market for video content or the market for social media services, are actually in competition for their users’ attention and should either be placed in the same “market” or at least formally acknowledged in some way as genuine competitive constraints on each other. The billion-dollar question that remains unanswered is what impact, if any, cognisance of such a relationship between these digital platforms should have on how their market power is evaluated in the eyes of the competition law framework – should Facebook still be regarded as a dominant undertaking in light of the significant competitive pressures exerted upon it by other online service providers that might capture the limited attention and imaginations of fickle social media users? What about every other online activity that occupies the time and attention of social media users – should those be regarded as competitive constraints as well? This leads us to yet another conceptual uncertainty that competition authorities have to confront when scrutinising the conduct of social media platforms – what does “competition” actually entail, exactly, in this particular industry context?

Competition: What Does “Competition” Mean in the Context of the Complex Digital Ecosystems Occupied By Social Media Platforms?

If the digital “ecosystem” perspective of competition between social media platforms described above is adopted, and competition in the context of social media platform markets is analysed not in terms of the discrete services offered by these platform operators, but as broader packages of online services in exchange for the right to collect monetisable data from account holders, then any analysis of the allegedly adverse effects of their behaviour on competition must expand its scope of inquiry to consider a much-enlarged range of variables. Evaluating the competition effects of the conduct of undertakings in any market for digital services that social media platforms have expanded into must take into consideration the wider interactions across entire digital ecosystems. Only the most sophisticated and well-resourced agencies will have the resources to embark on such an exercise, which might even then only result in highly speculative or tentative conclusions that do not provide convincing justifications either for intervention or non-intervention.

For example, consider how Facebook’s platform ecosystem, through its in-built Facebook Jobs feature on the Facebook platform, might compete directly against LinkedIn, which is part of Microsoft’s ecosystem, even though LinkedIn has a specific purpose – it is primarily a professional networking site, unlike Facebook, which laypersons would regard as a social networking site. In fact, when Microsoft acquired LinkedIn in 2016, the original intent was for LinkedIn to be gradually integrated with Microsoft’s other products, and not for Microsoft to compete with Facebook.133 An additional layer of complexity is thus added to the competitive process in the market for digital professional networking services – any comparative assessment of competitive dynamics between LinkedIn and Facebook Jobs must go beyond the usual market share metrics and factor in the economic and strategic advantages which the latter derives from being part of the broader Facebook platform ecosystem.

This phenomenon is replicated across the different tentacles of Facebook’s digital ecosystem (see Fig. 1, below). Besides the aforementioned competitive pressure asserted by LinkedIn on Facebook Jobs, Facebook Marketplace comes under competitive pressure from eBay and Amazon; Facebook Dating competes with other dating applications such as Tinder and OkCupid; Facebook Watch competes with YouTube, which forms part of the Google ecosystem. This competition between the constituents of different ecosystems occurs because the relevant market is not one for “social media” or “video-streaming website”, but one for the user or consumer’s limited attention and time. As such, when a Facebook user spends an hour on YouTube, he or she is in fact denying Facebook that hour of time and an hour’s worth of personal data that Facebook cannot collect.

Fig. 1.

The Facebook “ecosystem” – apart from social media services, account holders are also offered access to retail, job-seeking, video-watching, dating, and gaming services

From this perspective, it is arguable that conventional approaches towards analysing the “competition” between undertakings, focusing on the “substitutability” of individual goods or services – as exemplified by usage of the SSNIP and the SSNDQ tests – may not accurately capture the competition dynamics between rivals whose digital ecosystems feature multiple value propositions for consumers.134 Where social media platform account holders are concerned, competition does not occur primarily on the basis of price or quality differentials between substitutable services; instead, competition for their attention takes place between digital ecosystems that offer entire suites of service offerings. It remains unclear to what extent competition authorities are sensitive to the peculiarities of “competition” in these e-commerce sectors that are embedded within wider digital ecosystems, nor is it apparent that they are capable of adapting their conventional competition law frameworks to account for the complexities of the competitive process associated with this industry setting.

In addition, the real-world experiences of social media platforms from the past decade suggest that aggressive “competition” in this sector commonly occurs via imitation, rather than innovation. On the one hand, this might be an indicator of the fragility of the market position of the industry leader if newcomers can readily challenge them by replicating services or features that are popular amongst users. On the other hand, this could also mean that digitally dominant incumbents can entrench themselves and fend off competitive challenges by cherry-picking and copying elements from their rivals that users find most attractive. One of the more notorious examples of this phenomenon can be seen in the rivalry between SnapChat and Instagram. In 2013, Snapchat introduced a novel feature called “Snap Stories”, where users could upload time-limited photographs or videos onto their social media profiles that would last 24 hours before “disappearing”.135 However, in the absence of intellectual property protection, this feature was “stolen”136 by Instagram which introduced “Instagram Stories” in 2016.137 By the end of 2017, data showed that there were more users on Instagram Stories (with 300 million daily active users) than Snap Stories (with 187 million daily active users).138 Instagram benefitted from its strategic emulation of Snap Stories not just by increasing its user numbers, but also from the lessons it learnt from Instagram Stories which enabled it to better compete with Google for the online advertisement market.139 Conventionally, any legal relief from these sorts of appropriative conduct could only have been sought from the realm of a “unfair competition” laws, which would encompass intellectual property law and unfair trading laws; such misconduct would not be regarded as forms of anticompetitive conduct. However, the line between competition law and unfair competition law gets blurred when competition by aggressive imitation generates market foreclosure effects by enabling incumbents with deep pockets to entrench their positions at the expense of their smaller rivals. This brings us back to a basic question of whether conventional notions of “competition” and “harms” to competition can be meaningfully analysed in the context of the sprawling digital ecosystems of social media platforms.

These specific peculiarities of how “competition” takes place between social media platforms, which do not feature as prominently in other digital platform settings, suggest that a more sector-specific approach towards supervising the activities of social media service providers is justifiable to avoid over or under-regulating these undertakings.

Theories of Harm: Can Competition Authorities Formulate Sound Theories of Harm That Can Be Translated into Rational Legal Rules?

As a practical matter, if complex mechanics of the competitive process in social media markets are not adequately understood and accounted for, or too difficult to fit into conventional frameworks of legal or economic analysis, then it is likely that competition authorities will encounter problems articulating or developing cogent theories of competitive harm on which to base their investigations into the behaviour of “digitally dominant” social media platforms. It has been argued that a well-developed theory of harm should possess the following characteristics: firstly, it should articulate how competition and, ultimately, consumers will be harmed relative to an appropriately defined counterfactual; secondly, it should be internally logically consistent; thirdly, it should be consistent with the incentives that the various parties face; and fourthly, it should be consistent, or at least not inconsistent, with the available empirical evidence.140 In the absence of these features, the credibility of a competition authority’s underlying analysis and, correspondingly, the justification for any intervention on antitrust grounds, is diminished.

Within the short history of social media platforms, industry success has been short-lived for some, while others have secured for themselves quasi-monopoly status.141 Early market leaders like Friendster and MySpace were quickly dethroned by Facebook,142 vividly illustrating the potential transience of any market power an incumbent might have in this industry. Lessons from the swift demise of Friendster (dominant from 2002 to 2005), which was then displaced by MySpace (dominant from 2005 to 2009) would have been studied closely by not only Facebook, but also by Facebook’s current rivals, Twitter and TikTok, both of which have achieved significant degrees of commercial success notwithstanding Facebook’s ascent. From this perspective, conduct that raises antitrust suspicion – such as the acquisition of an up-and-coming potential rival – might be regarded as an entirely rational business decision to stave off obsolescence if the future viability of the social media platform’s core business depends on continuously cultivating new users from younger age groups who are the already customers of such acquisition targets. Rather than behaving anticompetitively, Facebook’s acquisition of Instagram might thus be regarded as vital to its continued commercial success. With its base of younger users, Instagram provides Facebook with the necessary datasets to compete against other more youth-oriented digital platforms.143 Given the importance of such data to the development of new products and staying relevant to successive generations of youths to utilise its social media services, the antitrust case against Facebook for its early acquisition of Instagram becomes less convincing. It remains to be seen whether the Federal Courts of the United States are able to formulate a conceptually sound antitrust rule to justify treating such conduct as unlawful.144

These challenges in articulating cogent theories of harm to competition will also translate into inconsistencies in the way competition rules are formulated and applied by competition authorities. For example, the EC has adopted the position that bundling and tying theories of harm should be “especially strict”,145 suggesting that the dominant firm bears the burden of proving that its conduct is pro-competitive and/or economically efficient, i.e. presumption of illegality. In contrast, the Organisation for Economic Co-operation and Development has noted calls from observers for such forms of conduct to have a presumption of legality.146 Likewise, there is considerable disagreement within antitrust circles over whether self-preferencing should be condemned as anticompetitive.147 Recognising “self-preferencing” as a species of anticompetitive harm is especially problematic in the context of undertakings that operate social media platforms within a digital ecosystem, where there are strong economic reasons for vertical integration. In other words, this is a sector of the digital economy where there are very obvious efficiencies to be reaped (which may or may not be passed on consumers) by rational profit-driven platform operators who enter downstream markets adjacent to their primary social media services market, where the continuous streams of personal data collected from account holders may be used as direct inputs for various other data-driven digital services offered via the same platform. However, this necessarily puts the dominant upstream platform operator in a position to treat its downstream affiliate more favourably than other platform users that compete with it directly, thereby distorting competition between these downstream market players. When such differential treatment is punished by competition authorities as instances of unlawful “self-preferencing” by competition authorities, then the social media platform operators have to either consciously act against their commercial self-interest when dealing with their downstream affiliates, or should refrain from entering these downstream markets in the first place – neither of which seems economically or commercially rational. Such instances of enforcement action may potentially have chilling effects on the growth of such digital ecosystems, ultimately making consumers worse off as a result if the non-affiliated downstream market players who use the dominant platform are unable to offer better services than an affiliated market player.

While investigations into allegations of anticompetitive self-preferencing by social media platforms have commenced, as briefly discussed above in Part 4.2 of this paper,148 it remains to be seen whether coherent legal rules can be devised to distinguish between lawful and unlawful decisions taken by a dominant upstream platform operator and its vertically integrated downstream affiliate. It is worth noting that the specific language used by the EC, when it announced it would be investigating Facebook, was whether Facebook had “unfairly used its vast trove of data to help Facebook Marketplace … [to] beat out competition”.149 Behaving “unfairly” suggests a different normative basis for objecting to such conduct from exclusionary abuses which are harmful to the competitive process and/or consumers’ welfare, bearing in mind that conventional principles of competition law have never sought to: (i) ensure commercial fairness and morality;150 or (ii) impose a duty on the stronger undertaking to ensure that its weaker competitors can compete.151 By policing unfair commercial conduct under the umbrella of anticompetitive “self-preferencing”, additional layers of legal uncertainty are inevitably introduced,152 thereby weakening the normative basis upon which the core concept – “abuse of dominance” – is grounded.

Effective Remedial Responses to the Objectionable Conduct of Social Media Platforms Require Competition Authorities to Tackle Issues Outside Their Traditional Scope of Competence

In Part 3.4 of this paper, we highlighted the fact that social media platforms are uniquely positioned to influence the perceptions and behaviour of their users, particularly the choices they make as consumers – a position of influence which extends beyond the digital realm of e-commerce into the socio-political landscapes of the real world.153 The digital dominance wielded by such platforms has enabled them to pursue profit-driven operational strategies that promote extremist viewpoints, polarising public opinions relating to politically divisive issues, facilitating the dissemination of misinformation and jeopardising the physical and mental well-being of their users.154 Other manifestations of the digital dominance of social media platforms have arisen in the context of how their activities have made inroads into the news-reporting functions of traditional mass media, eroding institutions that are fundamental to the operation of liberal democracies.155 Responding effectively to these concerns requires multiple regulatory policy competencies – such as balancing free speech interests against threats to public order, or supporting news journalism as a pillar of civil society – that are far beyond the expertise of competition authorities.

The key issue is whether competition authorities are the appropriate institutions to carry out the balancing exercises, involving directly opposing policy interests that arise from the competitive strategies pursued by social media platforms. Take, for example, the debate over privacy concerns stemming from the use of social media platforms. It has been suggested by at least one report that the lack of competition in the social media market has resulted in the low quality of data handling and protection, with evidence that Facebook has overridden its users’ privacy settings in order to transfer data to third parties.156 Yet, it is worth noting that the flipside to this is that the data-monetisation activities of social media platforms do promote competition because their targeted advertising services enable businesses (especially small ones) to reach out to specific groups of consumers.157 Services such as Google Ads and Meta Ads are, in this respect, vital to enabling new companies to enter markets in a manner that is cost-efficient (as their advertisements are directed not to the public at large, but to specific groups). In this light, the stringency of data protection within a jurisdiction does have a real impact on the ease in which market entrants can enter the target market; – a stringent level of data protection results in less specific targeted advertisements (thereby resulting in new undertakings having to spend more to reach their target audience), while a lower level of data protection results in users losing – completely in some cases – over the use of their personal data.

Furthermore, with the vital importance of personal data as an input for the provision of digital services, it may only be a matter of time before competition authorities will have to confront the question of whether such inputs, which are collected by social media platforms from their users, have the requisite degree of “essentiality”158 that would make them “indispensable” products that competitors must have access to in order to enter the market – such that it would be an abuse of dominance by the personal data-collecting platform to refuse to supply such data to third-party competitors.159 Should such a scenario materialise, it is difficult to envisage a competition authority displaying any enthusiasm towards the performing the task of deciding how much personal data collected by social media platforms should be shared with third-party competitors and on what terms. Apart from the complexities of having to comply with prevailing personal data protection legal frameworks, and putting aside the issue of whether a coordinated response with the relevant data protection agency is required, very similar difficulties already alluded to above emerge, once again, if competition enforcement authorities are entrusted with the primary responsibility for reining in the digital dominance of social media platforms. Any remedial response that mandates the compulsory sharing of the personal data of consumers would simply lie beyond the legal competence and comfort zones of competition authorities.

Conclusion and Future Forecasts

In an increasingly digitally interconnected world, social media platforms will continue to have a profound impact on the private and public lives of their users, wielding such a significant and complex species of “digital dominance” that should – as this paper has argued – qualitatively distinguish this e-commerce sector from other electronic platform-based service providers. Across the globe, a wide variety of concerns have emerged from the conduct of these technology behemoths, ranging from the personal data collection and usage policies that are imposed on their users to their commercial strategies vis-à-vis their actual and potential competitors; while some of these issues relate to competition-specific concerns, others also engage different non-competition related norms such as privacy and the regulation of free speech. For the reasons canvassed above, this paper has sought to explain why competition law frameworks and competition authorities should not be given the primary responsibility for policing the activities of social media platforms. Rather than just relying on the ex post enforcement of competition liability rules against these undertakings (including the expanded range of statutory prohibitions found in the European Union’s DMA), concerned policymakers should give more attention to the development of ex ante regulatory tools that can provide a principled basis for restraining their conduct towards the many different groups of platform users. Any objections raised against the adoption of more prescriptive rules that do not engage in detailed and sophisticated analyses of harms and effects will have to be met with a pragmatic response: perhaps the societal stakes are high enough to make the “sledgehammer” the lesser of two evils, where enduring the flaws of such a regulatory approach are preferable to jeopardising all the other social interests that are harmed by relying on conventional ex post enforcement measures.

Social media platforms are the digital equivalents of physical infrastructure underlying the telecommunications industry – including satellites, undersea cables and fibre-optic networks – that are vital to numerous forms of human and commercial interaction. A similar focus on ex ante regulation, similar to that found in the communications and utilities industries, should thus be transposed from the offline world to the online world. Such a regulatory framework for social media service providers should incorporate stakeholder perspectives beyond the legal and economic expertise of conventional competition authorities – it should also include the inputs of sociologists, data scientists and business sector-specific experts.

We believe that current developments around the world suggest that the seeds for applying greater ex ante scrutiny of social media platforms have already been sown. Firstly, governments in mature competition law jurisdictions have acknowledged that conventional competition law principles are unsuited for application to digital platforms and are at varying stages of introducing new legislation with more flexible statutory language. This is probably the first step, in a much longer journey, towards greater oversight of the large technology firms whose conduct has not been adequately restrained by existing legal frameworks. It remains to be seen exactly what kind of impact such written laws will have on these targeted industry sectors, but it is almost certain that any final determination of how these statutes should be interpreted will only be reached after protracted appellate proceedings are fully concluded. It is also worth pointing out that these legislative initiatives were designed with all kinds of digital platforms in mind and do not deal with the complexities specifically associated with social media platforms that we have discussed above.

Secondly, the impetus for exercising greater regulatory control over social media platforms is likely to correlate to how deeply entrenched these digital ecosystems have become in the day-to-day lives of their users. The more dependent consumers are on having access to such services, the more vulnerable they are to exploitation and other forms of conduct that trigger consumer protection impulses. One of the prevailing strategies currently pursued by leading social media platforms like Facebook is to build “walled gardens”160 around their digital ecosystems, taking their cue from the immense successes experienced by Chinese social media platforms such as WeChat, where a “closed system” of complementary digital services is offered to consumers without the inclusion of third-party offerings. In China, the WeChat social media platform supports a whole host of other sub-platforms known as “mini-programs”, functioning almost as if it were an operating system. These sub-platforms provide users with advanced features such as e-commerce, virtual store tour, task management, coupons, and other services. This has resulted in many digital companies, such as Meituan161 and Pinduoduo,162 creating a WeChat-specific version of their original applications,163 enabling WeChat’s digital ecosystem to evolve beyond its original instant-messaging roots into an operating system for a vast array of personal services. It is also worth noting that, during the COVID-19 pandemic, local governments relied significantly on WeChat’s ability to create sub-platforms to manage many aspects of their pandemic control protocols: WeChat was used to provide real-time health QR codes, record PCR test results, facilitate vaccination registrations and provide answers to frequently asked questions.164 Facebook currently pursues a broadly similar strategy through its new incarnation, Meta – a “social technology company” which seeks to build the “metaverse”.165 One of the key features of this metaverse is the deep integration of various popular digital services, such as Slack, Dropbox, Facebook and Instagram into each user’s “home base”. The objective is to keep users “locked into” this digital ecosystem as far as possible, while controlling which rivals, if any, have access to the “inhabitants” of this metaverse. At the end of the day, pursuing a “walled garden strategy” minimises the social media platform’s exposure to various traditional antitrust complaints relating to, for example, the need to ensure interoperability with third-party applications, or allegations of anticompetitive tying or self-preferencing. However, this strategy also magnifies the inequality in the bargaining positions of the platform operator and its users, thereby strengthening the case for ex ante regulation.

Thirdly, and following from the two previous observations above, it has become glaringly obvious to governments that they should be wary of the dangers which unregulated social media platforms may pose to society, not just in competition terms but also their wider impact on the fabric of entire societies. When Twitter was identified as a hostile acquisition target by Elon Musk, who made promises to liberalise free speech on the platform by adopting a softer stance on content moderation,166 one of the immediate concerns was whether inflammatory tweets would be tolerated even if they risked triggering episodes of violence in the real world.167 A more extreme illustration might be found behind the “Great Firewall of China”, where the emphasis on exerting greater control over large Chinese technology companies has been vividly illustrated by the recent deployment of a supervision team from the Cyberspace Administration of China (“CAC”) that will be stationed in Douban.168 While the CAC stated that this deployment was to rectify “serious online chaos” within Douban, it failed to elaborate on what issues it was trying to resolve, or how long the team would stay.169 Recent campaigns launched by the Chinese government to target how internet giants such as ByteDance and Tencent serve up advertisements and content to hook users onto their respective platforms demonstrate an awareness of the undesirable impact such online activities might have on Chinese society, whether because they create risks of cyberaddiction, jeopardise “national security” or foment “social unrest”.170 Vietnam, which is a major market for Facebook with over 60 million users, has similarly recently introduced a national code of conduct for social media platforms and their users in Vietnam which prohibits social media posts that are detrimental to state interests.171 The United Kingdom has, in the same vein, moved to pass new laws to tackle conduct on social media platforms that enable foreign states to influence elections or court proceedings, or to spread falsehoods and disinformation.172 Many other jurisdictions have already taken, or will soon introduce, similar measures.

Taken together, these recent developments should convey the gravity of the range of problems faced by different societies around the world arising from the behaviour of social media platforms, problems which stretch far beyond the realm of competition law. The magnitude of these adverse effects, both in terms of their harms to competition and other societal interests, is attributable to the exceptional nature of their digital dominance across multiple jurisdictions and requires holistic ex ante regulation rather than being subjected to the limited ad hoc remedial measures that may be pursued by individual competition enforcement agencies. Competition authorities therefore cannot, and should not, be relied upon to police social media markets and the platforms around which they operate; neither the competition-related concerns surrounding market contestability and entrenchment, nor the non-competition related socio-political problems associated with this particular category of digital platforms are matters which can be meaningfully tackled by conventional competition law frameworks.