In recent years, states have launched several antitrust investigations targeting digital platforms. A major difficulty in these investigations is demonstrating the extent of a digital platform’s market power. Market power is defined as the control of the output or the price without the loss of business to competitors. As will be explored in this Article, market power is a critical component in an antitrust analysis. On several occasions, courts have adopted the switching costs approach in their analysis of market power. According to this approach, market power may be inferred when the costs of switching from one supplier to another are too high and prevent users from switching. Yet, few studies have assessed this approach empirically in the context of digital platforms.
This Article aims to explore the application of the switching costs approach to antitrust investigations of digital platforms. My study concentrates on Facebook as an example because the company has been accused of several antitrust violations under the Sherman Act. The study explores whether the switching costs approach can show that Facebook has market power in the online networking market.
My empirical analysis highlights changes in the number of users active on Facebook over time. Specifically, it indicates significant changes in Facebook’s advertising revenues after Facebook’s 2011 and 2019 privacy violations went public. These developments indicate the absence of substantial switching costs for Facebook users. Based on the foregoing, this Article deduces that Facebook does not have market power under the switching costs approach.
Market Power and Switching Costs: An Empirical Study of Online Networking Market,
90 U. Cin. L. Rev.
Available at: https://scholarship.law.uc.edu/uclr/vol90/iss1/3