Competition Corner: Some Breakups Are More Painful Than Others

Issue #38

G’day,

Arguments continue in the D.C. district court over the FTC’s attempt to ‘break-up’ Meta’s acquisitions of WhatsApp and Instagram, which were consummated over a decade ago. Based on an oddly gerrymandered market definition that excludes competition from X, TikTok and YouTube, the suit claims that Meta acquired these apps to illegally entrench its monopoly while making it harder for rivals to enter the market and compete. Meta, for its part, claims to have invested hundreds of millions in improving WhatsApp and Instagram, which remain extremely popular a decade after their supposed “killer acquisitions,” and about five years after the suit was brought by the first Trump administration.

While those competing claims will be tested in court, the potentially painful effects of breaking up Meta for consumers are a lot clearer. As our senior scholar and former FTC general counsel Alden Abbott argues, such a breakup “would impose substantial harm on Facebook customers who enjoy the improvements the company has made in WhatsApp and Instagram, and, more broadly, would destroy the integrated platform experience Facebook has created. This would not just harm consumers and the company, it would send a message that innovative platforms will be disciplined if they are too successful. This would disincentivize innovation and unnecessarily cripple one of America’s top global firms.”

Even assuming that Meta’s acquisitions of WhatsApp and Instagram were anticompetitive, structural breakups as a remedy have a poor history of outcomes, illustrating the dynamic and unpredictable nature of markets, especially high tech ones. Even the famous and successful AT&T breakup was less a forced splitting of a competitive business, and more the unwinding of a monopoly created by government overregulation.

Which brings us to what would be a breakup of a genuinely toxic relationship: government agencies and their burdensome regulations.

The Trump administration’s April 9 executive Order on Reducing Anti-Competitive Regulatory Barriers requires all federal executive agencies, including the DOJ and the FTC, to curate a list of all their regulations that impede competition within 70 days (followed by 90 days of review by the White House, the DOJ, and the FTC) so they may be modified or repealed. Such regressive regulations impose significant costs that may be passed on to consumers through higher prices. These also make competition harder for smaller firms, as they lack the scale economies needed to spread out regulatory fixed costs, and as many lack expertise and relationships with agencies for navigating regulations. Anticompetitive regulations also artificially disadvantage some firms over others, and are often the product of special interest lobbying despite being couched in altruistic rhetoric. The Growth Commission, an international and independent group of economists who study economic growth, finds that such regulations that distort competitive markets stymie growth and prosperity to a far greater degree than tariffs. Given some recent and promising Supreme Court decisions, we’re certainly hopeful that repeals of these anticompetitive barriers will stick in the long run despite the inevitable opposition from special interests who benefit from them.

But what do you think? As always, send us your thoughts. We certainly need a distraction from what the recent economic uncertainty is doing to our 401Ks!

For more on the DOJ taskforce for dismantling anticompetitive regulations, check out Alden’s column in Forbes. For more on why the president’s deregulatory agenda for helping American businesses and spurring growth holds more promise than the tariff agenda, click here. Also see Alden’s Forbes column on the President’s executive order on dismantling regulations, plus his Forbes column on the interplay between reducing anticompetitive regulations and negotiating away trade restraints.

US Steel & Nippon

Tariffs on steel imports may have been welcomed by domestic steel worker unions, but they’ve also inflicted pain on US manufacturers by hiking their input costs. The federal government can better support the domestic steel industry without inadvertently harming competition by approving the merger of US Steel and Nippon, as Alden argues in Forbes.

Is ‘Big Data’ a Barrier to Entry in Generative AI Markets?

Alden and I are pleased to release our new Mercatus working paper, which challenges the assumption that generative AI markets are likely to converge on a few big-tech firms that can monopolize their vast troves of user data to train the best foundation models (LLMs). Contrary to these concerns, there’s a thriving market for open and closed-source training datasets, and independent developers and startups have beaten large tech firms through superior products and algorithms. Innovations like synthetic data and engineering workarounds, as well as a likely shift towards more specialized and nimble models that require less data to train, are also likely to lower concerns about data scarcity becoming a barrier to entry. And while existing US antitrust law provides a dynamic and flexible framework for addressing data monopolization if it does arise, ex-ante rules and knee-jerk laws passed to punish firms for growing too big or acquiring too much data are likely to be counterproductive for competition and innovation in generative AI.

You’re fired!

In the last Competition Corner, I argued that although president Trump is right that the constitution permits him to fire officials in the current FTC without cause, the firings of democratic commissioners Bedoya and Slaughter may set an unfortunate precedent that could increasingly divide the agency’s approach to antitrust along politicized partisan lines between administrations, thereby diminishing the commercial certainty that competitive businesses need in the long run. Alden makes the opposite argument in his recent Forbes column, arguing that the firings are both sound on the law and good policy that will better align antitrust enforcement towards competitive ends.

Coming soon…

Alden is currently working with the Growth Commission’s Shanker Singham on comments to the DOJ taskforce on eliminating anticompetitive regulations.

That’s all for mid-April. We’ll be back at the end of the month with another update on what’s new and hot in the competition and antitrust world.

Satya Marar
Visiting Postgraduate Fellow
Mercatus Center at George Mason University