The Power of Users: Protecting Competition in the Facebook and Google Ecosystems

Abstract

This thesis examines the potential of Facebook and Google to undermine competition, innovation and consumer welfare. In light of recent privacy scandals like Cambridge Analytica and antitrust cases against Google by the European Commission, Facebook and Google are faced with regulatory pressure on two fronts: privacy and competition. This thesis draws on both fronts to look at the impact of any regulation on the two firms’ ecosystem power. Ultimately, the thesis proposes two hypotheses to understand this impact:

1) Facebook and Google have achieved power within their ecosystem and captured economic value through their ability to direct and monetize the activity of users on their products. 2) The two firms leverage this power to integrate users, content providers, advertisers and other data providers into their products, creating a nexus within the ecosystem. This nexus position is self-perpetuating and enables unrivaled data access, effective monetization, and the ability to undermine competition.

This thesis explores these hypotheses in several steps. First, it examines Facebook and Google’s relationships with users, content providers, advertisers, and third-party data providers. These billions of individual relationships connect to Facebook and Google’s products at the nexus. Examining this nexus position, the thesis details the two firms’ access to data and product structure to detail their self-perpetuating ecosystem power, which ultimately allows Facebook and Google to undermine competition through innovation, aggression and emulation. The thesis then explores the likely effect of prominent regulation on Facebook and Google’s ecosystem power and ability to undermine competition. Namely, the thesis investigates Europe’s General Data Protection Regulations and California’s Consumer Privacy Act. This investigation reveals that regulation requiring user consent for and control over data collection, as well as requirements for application interoperability and data portability, hold the potential to strengthen Facebook and Google’s nexus position. Further, antitrust cases have placed insufficient focus on the driver of the two firms’ ecosystem power: the ability to direct user activity. Finally, the thesis combines the original hypotheses and assessment of current regulation to formulate a framework for policymakers seeking to curb anti-competitive activity by Facebook, Google and others. It examines regulation at the user-level and at the ecosystem-level. User-level policy holds the potential to structurally challenge the ecosystem power of Facebook and Google, while ecosystem-level policy can prevent the abuse of ecosystem power that persists. The framework concludes with the need for regulations to remain flexible and responsive to the rapid technology developments and potential shifts in ecosystem players. Users drive Facebook and Google’s ecosystem power, and users can ultimately check that power. Policymakers must focus on preserving competition, so that users are able to exercise that restrictive role on Facebook and Google.