There is a new front that has opened up in the years-long battle between the FTC and Facebook. Federal regulators have filed a lawsuit to block the social media giant’s proposed acquisition of a company named Within that makes a popular virtual reality fitness app called Supernatural. In this episode of Debugger in 10, we talk with Duke University law professor Barak Richman about the merits of the case and the broader context of the FTC’s legal battles with Facebook/Meta.
Click play here, or click the play button below, to listen. A transcript appears below.
Bob: Barack, why does the FTC care so much about Facebook’s acquisition of a virtual reality fitness maker?
Barack Richman: So I think there are two reasons. One of the reasons is that it’s Facebook, and Facebook is a company that controls a really important platform. And being a platform means there are natural efficiencies. This allows it to maintain its dominant position in its main market. I guess the primary market is fine no matter what Facebook is doing. And it also allows Facebook, like other platforms, to have a natural advantage in other markets as well. So, by virtue of Facebook being the defendant, the FTC is particularly interested in reducing what is a very natural position of economic advantage that Facebook has in several markets, where there could be competition. I think that’s one of the reasons.
The second reason which, which frankly, I, I think is a bit more – finds more support in traditional antitrust law – is that the virtual reality market or the market for virtual reality applications and products is a growing market. growth. And who knows how big it will be, but it’s a market where there aren’t many competitors right now. It’s a market where I think most consumers and policy makers expect to see a lot of dynamic competition. This is a market where Facebook is already present. And Within already has a presence. And there are fears that the coming together of these two forces will simply stifle competition in this small market.
Bob: One of the things the FTC said was that instead of competing on the merits, Meta – Facebook – is trying to buy its way to the top. Is it.
Barack Richman: It is not illegal to buy your way to the top. Uh, I’m not even sure what buying your way to the top really means, I, I would characterize this more as press release language, uh, than legal language.
Barack Richman: Now, there’s something, uh, problematic with two companies competing against each other. Merge or cause a company to buy out its main competitor. Uh, you could, I guess you could call it buying your way to the top or buying your competitor so you can stay on top. Uh, but you know, it really doesn’t matter whether you’re upstairs or downstairs.
Barack Richman: The thing is, it’s a problem when competitors are in a market, uh, especially if those competitors are core competitors and an otherwise concentrated market. Join forces. It is a problem. It’s definitely not a problem when, say, a company, uh, traditionally successful, but trying to enter a new market, decides to buy a company instead of developing the capabilities itself.
Barack Richman: I’m sure you know the pharmaceutical industry and its very, very deep history of acquisitions. Where, for example, a Pfizer, uh, would buy, uh, a drug or a company that is developing an antiviral. Um, instead of developing the drug itself, buy a company that has already developed the drug which we consider an important part of the innovation process.
Barack Richman: Uh, then. Characterizing this as a big business buying its way to the top I think is really misleading. In fact, in some circumstances we want big companies to buy small companies, because that often means the small company’s product is going to market. Uh, but what we don’t want, uh, are acquisitions, stifling competition, that’s a much more accurate way to describe what this stock is trying to do.
Bob: There are those who say this acquisition definitely reminds them of Facebook’s acquisitions of Instagram and WhatsApp. Does this remind you?
Barack Richman: You know, that, that, that doesn’t work in a lot of ways. And in many ways, I find this acquisition more inconvenient, uh, or another way of putting it. I, I think I like the case of the FTC on the acquisition of Within. I like it better. Then the, then their case against the acquisition of Facebook for Instagram. When Facebook bought Instagram, Facebook had a great platform on desktop that it was trying to take to mobile devices, and it was struggling to do that. Um, and when he bought Instagram, it was really an effort to merge that mobile foundation, mobile platform with his desktop platform. Now, the criticism the FTC has made is that, well, Facebook would otherwise be developing its own mobile platform itself. And that would have meant there would be a lot of competition and that is possible. We really don’t know what the alternate universe would have looked like if Facebook hadn’t bought Instagram, but in many ways the rationale behind Facebook’s purchase of Instagram is a solid rationale. Here is a good company trying to grow. Uh, it’s his presence in an adjacent market. And instead of building capacity, it bought capacity and built on this new platform.
This case with Within, you already see Facebook developing virtual reality products. In fact, in many ways, it’s already the leader. And it’s a nascent market. This is a market where many other companies might be able to tap into or collaborate. you could imagine in the development of its own platform. You see a lot more horizontal overlap between what Facebook offers and what Within offers than what I think you’ve seen between Facebook and Instagram. And you also see fewer synergies. You see, it’s hard to imagine how Facebook could really transform Within…it’s much easier to imagine how Facebook would simply fit into the world of Facebook and leave consumers with less choice.
Bob: Another point the FTC makes is this, it’s more subtle, but the, the mere possibility of Facebook’s entry, and that’s specifically in the field of virtual reality fitness, the possibility of its entry influences the competition. And I’ve heard that before. Um, I’m told that VCs often ask startup founders questions, like, okay, I like your idea, but why wouldn’t Amazon crush you? Is this something the FTC can deal with antitrust law?
Barack Richman: antitrust? That’s a very good question. In many ways, this is the question of economic policy. Uh, because a lot of, you know, you’re right. A big part of our innovation economy. Much of Silicon Valley is about small companies producing ideas and then selling them to one of the big four or five platform companies. And there are extremely large and very deep economic questions about whether it’s a good thing or a bad thing, whether these big companies are buying companies and producing value or whether they’re buying companies and stifling value.
Barack Richman: Listen, I think the answer to this question has to be a nuanced answer. Some acquisitions are really essential. Some markets wouldn’t grow without the support of big platform companies, but I think it’s also undeniable that some markets are overwhelmed because big companies are buying or killing them.
Barack Richman: So I think it’s an important question. I don’t think a single decision or a single action, a single lawsuit brought by the FTC is going to significantly change this innovation ecosystem. But I think on a much more micro level, it’s important to consider what the alternate world would look like. What would happen if Within was bought by Facebook — What if Within was not bought by Facebook? It’s really important to play these scenarios meaningfully, not silly. And to think about what the long-term consequences of the economy are.
Bob: And do you have any idea of the direction that the acquisition of Within could take?
Barack Richman: You mean until the end of the case?
Barack Richman: You know, I’ll say, I’ll, I’ll give you two predictions for the price of one. I will say that Facebook will win the challenge the FTC gave it for its acquisitions of, uh, both Instagram and WhatsApp, but it will lose it in a significant way.
Barack Richman: Uh, his buddy, uh, his case against the FTC UN inside. I think that. Um, first of all, carrying a record at the time of acquisition and not a retrospective record is a much stronger record. And I also think there might be enough concern about this new market, uh, and there’s enough data in the complaint to suggest there’s enough horizontal overlap that means the loss not only of potential competition, but even the loss of competition right now…where I think that’s a strong case. And I will say that. I think that if the acquisition is not stopped by the FTC, it will be significantly modified
Bob: Barack Richman of Duke University. Thank you very much for being here.
Barack Richman: Thank you very much for inviting me.