Google and Facebook dominate the ad market; so what?

Note: This is post #3 in a multi-part series.

Another embarrassing contradiction identified by Mark Lemley in Part 1 of his excellent new paper on “The Contradictions of Platform Regulation” involves the use of antitrust law to police or regulate the Internet advertising market.

In brief, the proponents of Internet regulation like to point out how the Internet ad market market is dominated by Google and Facebook. (See, for example, the infographic below.) But as Professor Lemley astutely observes (p. 313-314, emphasis and exclamation point added), “it’s a bit awkward to point to multiple ‘monopolists’ in a single market“! Be that as it may, the proponents of Internet regulation are worried about about the practical effects of Google and Facebook’s dominance of the Internet ad market. Specifically, one concern is that both Google and Facebook collect enormous amounts of data about its end users in order to sell targeted ads to them. An additional worry is that traditional news outlets (i.e. broadcast and print media) now have a more difficult time selling ads themselves. (On this latter point, see the sources in footnote 37 of Lemley’s paper.)

The glaring problem with these concerns, however, is that the proponents of Internet regulation have not thought through the likely consequences of introducing more competition into the Internet advertising market. To see why, let’s take their main argument at face value: let’s accept for the sake of argument the claim that Google and Facebook are monopolists that dominate the Internet advertising market. If Google and Facebook were really monopolists in the ad market, then we would expect them to be charging a premium for ad space on their platforms; that is, we would expect to see them selling ads at higher than competitive prices. But if that were really true, this state of affairs would then present a golden opportunity for other firms (including traditional news outlets) to more effectively compete with Google and Facebook by selling ad space at lower prices.

Further, the proponents of Internet regulation must grapple with an even more fundamental problem. Again, let assume that Google and Facebook are monopolists in the Internet ad market. (Although it bears repeating that this is an absurd claim on its face (see boldface quote above), let’s go ahead and ignore logic for now.) If this were really true, then we would expect to see fewer ads overall, which would be a good thing for most end users! Why would we expect to see fewer ads if Google and Facebook were monopolists? Because demand curves slope downwards. In words: when monopolists sell their ad space at higher than competitive prices, ad agencies buy fewer ads. On this note, Lemley is worth quoting in full (p. 315):

“… many of the people actually complaining about the dominance of digital advertising are likely to be helped, not hurt, by that dominance. If Google and/or Facebook are advertising space monopolists, they are charging more money for ad space than they would in a competitive market and offering fewer ads as a result. That means they are selling your consumer data to fewer people at a higher price than they and others would if the advertising market were competitive. Advertisers might not like that, but most consumers probably would. Intervening to bring competition to digital advertising—whether by breaking up the platform giants or opening up their data troves to competitors—means that more companies will compete to sell more of your personal data to advertisers for less money.”

Okay, but what about privacy? I will continue my review of Lemley’s paper in my next post and show how proposed privacy regulations are fundamentally contradictory as well.

The Dominance of Google and Facebook in One Chart

About F. E. Guerra-Pujol

When I’m not blogging, I am a business law professor at the University of Central Florida.
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2 Responses to Google and Facebook dominate the ad market; so what?

  1. Pingback: Lemley on data security and hacker threats | prior probability

  2. Pingback: Three-headed monsters? A critique of Kapczynsky’s Internet-regulation proposals | prior probability

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