The chairman of the U.S. Federal Trade Commission said antitrust enforcers need to be worried about dominant companies buying startups that are emerging competitive threats — highlighting one of the main issues in the agency’s investigation of Facebook.
Joe Simons said in a speech Thursday that takeovers of nascent competitors can be harmful to consumers and said that enforcers need to be ready to step in to stop such deals.
“A monopolist can squash a nascent competitor by buying it, not just by targeting it with anti-competitive actions,” Simons said at an American Bar Association conference. “It may be easier and more effective to buy the nascent threat, only if to keep it out of the hands of others.”
Simons’s remarks come as the FTC is nearing the end of an antitrust investigation of Facebook that began last year. The agency is preparing a lawsuit against the social media giant and could file the case in a matter of weeks, Bloomberg News has reported. A coalition of state attorneys general is also investigating the company.
Ohio Attorney General David Yost, a Republican who is part of that group and another one investigating Alphabet Inc.’s Google, said Thursday during a separate event hosted by the Ohio State Bar Association, that both companies have a track record of co-opting internet challengers.
“When a new app or internet service begins to generate buzz and subscribers — say Instagram or Whatsapp — it gets bought up by Facebook and Google,” Yost said. That acquisition strategy “prevents any competitor from growing big enough to challenge Facebook and Google’s market dominance.”
Both the federal and state officials have been probing whether past acquisitions by Facebook violated antitrust laws. Although the FTC investigated and approved two of Facebook’s biggest deals — the acquisitions of Instagram and WhatsApp — it has the authority to revisit past transactions and go to court to unwind them if it determines they were anticompetitive.
Facebook says both Instagram and WhatsApp faced other competitors at the time of the acquisitions and that it was Facebook’s subsequent investments that have made them successful.
When Facebook Chief Executive Mark Zuckerberg testified in Congress in July, House Judiciary Chairman Jerrold Nadler of New York accused Facebook of buying Instagram because it saw the company as a threat and bought it instead of competing.
“We must be willing and able to recognize that harm to competition might not be as obvious from a look at the marketplace as it stands currently,” said Simons. If officials only consider a “static picture” of a market, “then we risk forfeiting the benefits of competition that could arise in the future.”
