The FTC’s Pre-Acquisition Review Requirement for All Meta Deals: Hyper-Regulatory, Anti-Free Market, Anti-Rule of Law, and Anti-Consumer
The Federal Trade Commission (FTC) wants to review in advance all future acquisitions by Facebook parent Meta Platforms. According to a Sept. 2 Bloomberg report, in connection with its challenge to Meta’s acquisition of fitness-app maker Within Unlimited, the commission “has asked its in-house court to force both Meta and [Meta CEO Mark] Zuckerberg to seek approval from the FTC before engaging in any future deals.”
This latest FTC decision is inherently hyper-regulatory, anti-free market, and contrary to the rule of law. It also is profoundly anti-consumer.
Like other large digital-platform companies, Meta has conferred enormous benefits on consumers (net of payments to platforms) that are not reflected in gross domestic product statistics. In a December 2019 Harvard Business Review article, Erik Brynjolfsson and Avinash Collis reported research finding that Facebook:
…generates a median consumer surplus of about $500 per person annually in the United States, and at least that much for users in Europe. … [I]ncluding the consumer surplus value of just one digital good—Facebook—in GDP would have added an average of 0.11 percentage points a year to U.S. GDP growth from 2004 through 2017.
The acquisition of complementary digital assets—like the popular fitness app produced by Within—enables Meta to continually enhance the quality of its offerings to consumers and thereby expand consumer surplus. It reflects the benefits of economic specialization, as specialized assets are made available to enhance the quality of Meta’s offerings. Requiring Meta to develop complementary assets in-house, when that is less efficient than a targeted acquisition, denies these benefits.
Furthermore, in a recent editorial lambasting the FTC’s challenge to a Meta-Within merger as lacking a principled basis, the Wall Street Journal pointed out that the challenge also removes incentive for venture-capital investments in promising startups, a result at odds with free markets and innovation:
Venture capitalists often fund startups on the hope that they will be bought by larger companies. [FTC Chair Lina] Khan is setting down the marker that the FTC can block acquisitions merely to prevent big companies from getting bigger, even if they don’t reduce competition or harm consumers. This will chill investment and innovation, and it deserves a burial in court.
This is bad enough. But the commission’s proposal to require blanket preapprovals of all future Meta mergers (including tiny acquisitions well under regulatory pre-merger reporting thresholds) greatly compounds the harm from its latest ill-advised merger challenge. Indeed, it poses a blatant challenge to free-market principles and the rule of law, in at least three ways.
- It substitutes heavy-handed ex ante regulatory approval for a reliance on competition, with antitrust stepping in only in those limited instances where the hard facts indicate a transaction will be anticompetitive. Indeed, in one key sense, it is worse than traditional economic regulation. Empowering FTC staff to carry out case-by-case reviews of all proposed acquisitions inevitably will generate arbitrary decision-making, perhaps based on a variety of factors unrelated to traditional consumer-welfare-based antitrust. FTC leadership has abandoned sole reliance on consumer welfare as the touchstone of antitrust analysis, paving the wave for potentially abusive and arbitrary enforcement decisions. By contrast, statutorily based economic regulation, whatever its flaws, at least imposes specific standards that staff must apply when rendering regulatory determinations.
- By abandoning sole reliance on consumer-welfare analysis, FTC reviews of proposed Meta acquisitions may be expected to undermine the major welfare benefits that Meta has previously bestowed upon consumers. Given the untrammeled nature of these reviews, Meta may be expected to be more cautious in proposing transactions that could enhance consumer offerings. What’s more, the general anti-merger bias by current FTC leadership would undoubtedly prompt them to reject some, if not many, procompetitive transactions that would confer new benefits on consumers.
- Instituting a system of case-by-case assessment and approval of transactions is antithetical to the normal American reliance on free markets, featuring limited government intervention in market transactions based on specific statutory guidance. The proposed review system for Meta lacks statutory warrant and (as noted above) could promote arbitrary decision-making. As such, it seriously flouts the rule of law and threatens substantial economic harm (sadly consistent with other ill-considered initiatives by FTC Chair Khan, see here and here).
In sum, internet-based industries, and the big digital platforms, have thrived under a system of American technological freedom characterized as “permissionless innovation.” Under this system, the American people—consumers and producers—have been the winners.
The FTC’s efforts to micromanage future business decision-making by Meta, prompted by the challenge to a routine merger, would seriously harm welfare. To the extent that the FTC views such novel interventionism as a bureaucratic template applicable to other disfavored large companies, the American public would be the big-time loser.