Establishing Market and Monopoly Power in Tech Platform Antitrust Cases

• Author: Marshall Steinbaum
• DOI: 10.1177/0003603X211066984
• Published date: 01 March 2022
• Date: 01 March 2022

https://doi.org/10.1177/0003603X211066984

The Antitrust Bulletin

2022, Vol. 67(1) 130 –145

© The Author(s) 2022

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DOI: 10.1177/0003603X211066984

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Article

Establishing Market and

Monopoly Power in Tech

Platform Antitrust Cases

Marshall Steinbaum*

Abstract

In June 2021, a federal judge dismissed the Federal Trade Commission’s first monopolization

complaint against Facebook on the grounds that it did not plead sufficient facts to establish that

Facebook possesses monopoly power in online social networking. The ruling highlights two

contentious aspects of antitrust jurisprudence: the legal necessity of establishing a defendant’s

monopoly power as part of Sherman Act liability for unilateral conduct, and of establishing

market power as part of liability for some forms of multi-lateral conduct, as well as the few

mechanisms available to plaintiffs in both public and private enforcement to accomplish that,

especially following Ohio v. American Express. This article makes two related claims: that direct

evidence of market power is plentiful and should be understood as such by courts, and that

exactly the direct evidence of market power that courts should consider also establishes that

relevant markets on each side of tech platforms are small when properly defined, whatever

defendants may say.

Keywords

market power, platform, residual demand elasticity, residual supply elasticity, two-sided

I. Introduction

Just as empirical research in economics increasingly finds that market power is pervasive in the econ-

omy,1 demonstrating that any given antitrust defendant possesses it is increasingly difficult. And as

ambitious and legally innovative cases against dominant tech platforms are taking shape, they are run-

ning headlong into the jurisprudence inherited from an earlier time, when economists and courts

*The University of Utah, Salt Lake City, UT, USA

Corresponding Author:

Marshall Steinbaum, The University of Utah, Salt Lake City, UT 84112, USA.

Email: marshall.steinbaum@utah.edu

1066984ABXXXX10.1177/0003603X211066984The Antitrust BulletinSteinbaum

research-article2022

1. Jan De Loecker, et al., The Rise of Market Power and the Macroeconomic Implications, 135 Q. J. Econ. 561–644 (2020);

Gauti B. Eggertsson et al., Kaldor and Piketty’s Facts: The Rise of Monopoly Power in the United States, 124 J. MonEt.

Econ. S19–38 (2021), https://www.sciencedirect.com/science/article/pii/S030439322100101X (last visited Oct. 7, 2021);

Simcha Barkai, Declining Labor and Capital Shares, 75 J. FinancE 2421–63 (2020), https://papers.ssrn.com/sol3/papers.

cfm?abstract_id=3489965 (last visited Mar. 10, 2020).

Steinbaum 131

presumed market power was the exception rather than the rule and that even where it existed, it would

dissipate of its own accord in the absence of litigation or regulation.2

In June 2021, a federal district court dismissed the Federal Trade Commission’s (FTC) first

monopolization complaint against Facebook on the grounds that it failed to plead a sufficient case.

The judge wrote

The FTC has failed to plead enough facts to plausibly establish a necessary element of all of its Section 2

claims—namely, that Facebook has monopoly power in the market for personal social networking services.

The complaint contains nothing on that score save the naked allegation that the company has had and still has

a dominant share of that market (in excess of 60%).

Significantly, the judge explicitly stated that such a claim might suffice to establish market power at the

pleading stage in a traditional goods market, but not in the case of social networking, since the nature

of output in the market is not well established, and many applications have some element of social

networking built into their function. Moreover, like multi-sided platforms in general, the social net-

working business model has come to rely on a free or subsidized service for users. In the absence of

sales or revenue from the consumer-facing side of the platform, the market shares of each potential

competitor are difficult to define.

But Facebook’s near-monopoly on users’ attention and data gives the platform a great deal of

power in dealing with its other two sets of counterparties: advertisers and content creators. The real

business of social networking is to compete for its users’ attention, and by extension, their data.

Having diverted that from alternatives, the social network charges advertisers and publishers for the

ability to reach the customer base they were once able to access themselves or via alternative chan-

nels. The lack of revenue, and therefore revenue shares, on the downstream side is what made the

FTC’s complaint defective, and that lack of revenue is predicated on Facebook’s being a platform

business—able to give away a service to consumers for free, and gain a monopoly market share from

so doing, the better to extract payments from upstream counterparties. In this setting, a jurisprudence

that requires monopoly power be established by a predominant market share in the relevant market,

where market share is measured by sales or revenue, is going to fail to find market power precisely

where it is most present.

The difficulty in establishing monopoly power is further observed in the private lawsuit Epic

Games v. Apple charging violations of the Sherman Act, California’s Cartwright Act, and California’s

Unfair Competition law. The judge in that case issued a bench ruling on the merits in September

2021, concluding that Apple possessed market power but not monopoly power in the market for

“mobile gaming transactions” en route to a ruling for the defendant on the Sherman Act claims. The

ruling states “Apple is only saved by the fact that its share is not higher, that competitors from related

submarkets are making inroads into the mobile gaming submarket, and, perhaps, because plaintiff

did not focus on this topic.”

Part of the court’s reluctance to find monopoly power in that case was due to the fact that “mobile

gaming transactions” became more numerous even as Apple was undertaking the conduct at issue in

the case, which gives the Epic Games v. Apple ruling a similar flavor as Ohio v. American Express:

within the category of two-sided transactions platforms, if the number of transactions is increasing, that

precludes a finding of market power notwithstanding the structure of the market or the competitive

effects of any conduct subject to challenge. The assumptions motivating that holding in both Epic v.

Apple and Ohio v. Amex appear to be that competitive effects can only be evaluated with respect to

2. Frank H. Easterbrook, Limits of Antitrust, 63 tEx. Law REv. 1–40 (1984) frames antitrust enforcement in terms of error-cost

analysis and argues that the tendency for “false negatives” to disappear of the own accord due to profits incentivizing entry

militates in favor of a laissez faire approach to enforcing the antitrust laws.