Facebook Inc. Might Break Up, Here's What You Need to Know

December 22, 2020 | Joyce Ibrahim

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The Federal Trade Commission and a coalition of attorneys general of 46 states filed two separate antitrust lawsuits against Facebook Inc. earlier this month, accusing the social media giant of engaging in unlawful uncompetitive practices, more specifically of acquiring potential rivals to bolster its dominance over the digital marketplace and squash competition.

While this would be the first government antitrust action against Facebook in the U.S., the company’s activities have been under scrutiny for quite some time, as the FTC was already examining its acquisitions last year.

Should the antitrust lawsuits succeed, Facebook Inc. could potentially dismantle.

 

What are anti-trust laws?

Antitrust laws are legal instruments developed by the U.S. government to shield consumers and businesses from anti-competitive and predatory practices.

Antitrust laws aim to protect fair competition by restricting companies’ practice of harmful business activities such a bid rigging, price fixing, market allocation, and monopolies. This allows consumers the choice between different options in the marketplace, and ensures that price ranges and supply of products and services remain fair and accessible. 

In Facebook’s case, allegedly purchasing rivals to get ahead of competition is in direct violation of U.S Antitrust Laws. 

 

What are the claims made against Facebook?

Based on a lengthy examination of the company, both parties claim that Facebook’s acquisition of Instagram for $1 billion and WhatsApp for $19 billion  aimed to eliminate potential competitive threats that could have one day challenged its dominance. Furthermore, both Instagram and WhatsApp have only grown in popularity since those deals in 2012 and 2014. This put Facebook in control of three of the world’s most used social media and messaging apps and cemented its position as an internet powerhouse valued at over $750 billion.

Although the government had previously cleared Facebook’s purchases, Congress has been leading a war against monopoly in bigtech, putting Facebook under additional scrutiny for allegedly maintaining a monopoly in personal social networking through aggressive tactics and anticompetitive behavior which have surfaced in previous lawsuits as well.

 

What measures do these lawsuits seek?

The Federal Trade Commission is calling for the divestiture of some of Facebook’s businesses to restore competition, and for the company to support and provide the necessary services to the operations that are separated following divestiture. The attorneys general are also calling for Facebook’s acquisition of WhatsApp and Instagram to be undone, and both parties claim the company should provide a notice in advance of any new acquisition, which would be subject to regulatory approval as well. Furthermore, the FTC believes Facebook should not impose conditions on accessing its APIs and data, which they it claims restrict competition.   

 

But Facebook stock seems to be immune to its legal turmoil. In fact, UBS analyst Eric Sheridan noted that it will be unlikely for regulators to succeed in breaking up the company as they previously approved the acquisitions. Reflecting investors’ sentiment regarding the lawsuits, Facebook stock slipped by roughly 1.9%  Wednesday 9  with the Nasdaq Composite index, and then rose again that same day in midday trading after the lawsuit became public, according to Barron’s.