Would breaking up Facebook fix the social-media morass? Antitrust regulators are certainly eager to dismantle the world's largest social network. Their argument for doing so cites real harms, including the erosion of privacy, the spread of misinformation and hate speech, the acceleration of political polarisation and threats to the integrity of elections. Competition, they argue, will force Facebook to fix these problems. However, ill-conceived antitrust action, without structural reform, will not only fail to solve them, it will make matters worse.
Social media markets tip toward monopoly because of network effects: The value of a networked platform is a function of the number of people connecting to it. As more people use the product, its value to everyone increases. The greater its gravitational pull, the greater the grip it has on current customers. Breaking Facebook up into its component parts might slow that process down — but it won't change the fact that, in the long run, network effects create monopolies or near-monopolies.
The people running social media companies bolster the tendency toward monopoly by making it difficult for users to walk away. They make the their platforms incompatible with each other and keep an iron grip on the data we upload to them (and that they collect about us). If we leave Facebook or Instagram, we lose our pictures, our conversations, our very memories. We don't want to give those things up — and we also don't want to lose the relationships involved. These high-tech walled gardens combine with network effects to tip these companies even further toward monopoly.
Creating competition in the social media economy is essential. Imagine the positive effects for consumers if social media giants were competing to safeguard consumers' privacy, for example. But breaking up Facebook does nothing to promote the market conditions needed to sustain competition, because network effects will simply push the next Facebook-like company into a dominant position. Breaking up one company won't change the underlying market economics.
There's a cost to getting this wrong. Network effects create substantial economic benefits for billions of people around the world. As those benefits depend on the connections we make through social media, dismantling the networks will reduce the benefits without addressing the economic forces that drive the social economy toward concentration. Economic measures like gross domestic product and productivity growth don't capture the consumer value that Facebook creates, because users don't pay to be on Facebook. (And because they're not captured, they're easy for regulators to ignore.) But the value is real.
