It’s a major tenet of antitrust enforcement to look where the harm is greatest, which usually means looking at concentrated markets with little competition. As the Federal Trade Commission’s Chairman Joe Simons has said, that is where enforcement will get the “biggest bang for taxpayer dollar.” The opposite is also true, where there is vibrant competition there is rarely need for intervention. This is because competitive markets will resist attempts by individual actors to cause competitive harm. Those targeted by bad behavior will just move their business to another company.
Unfortunately, complicated and opaque industries can easily fall victim to gross misperceptions over how much competition exists. This is important because misperceptions can create a political call to intervene in an industry where few beyond the technocrats know this is unnecessary. The advertising industry is a good example of this. A common perception is that we are living in a stagnant duopoly where Google and Facebook control all of online advertising. But that couldn’t be further from reality.
First, online advertising is not a competition island. In antitrust enforcement, we identify a market of all the companies where it is clear that only those companies can constrain each others’ efforts to do bad things like raise prices or decrease quality. It is questionable that such a market could be defined to only include online advertising competitors when evidence suggests that they compete alongside traditional advertising methods like print, television, and radio for the overall budget of advertisers. Combined, this offline advertising still beats online advertising in size, and television advertising alone is still a hefty destination for ad dollars with 35% of the total advertising market compared to online’s 41%. Research supports that offline and online advertising can act as substitutes, meaning a hypothetical monopolist of online advertising may not be able to raise prices as advertisers could shift their spend to offline markets.
Second, there is fierce competition for online dollars that include companies beyond Facebook and Google. Former ad industry executive David Doty has outlined the race to become a third major player in online advertising. Top contenders are Amazon, Snapchat, Twitter, and now AT&T. These companies all have their strengths, but Amazon, in particular, has shown how easy entry can be thanks to their popular Sponsored Products advertising. Amazon’s ad earnings are projected to grow from $4 billion last year to $9.5 billion this year and are estimated to rise to over $18.5 billion by 2020. As an eCommerce platform Amazon has unique advantages and has proven to be better at converting ads to sales, and it’s testing a program to bring its ads to outside websites. Indeed, a new report shows that Amazon has just taken third place among online advertising with a 144.5% growth in revenue over last year.
Third, the advertising market is not stagnant; TV is going digital. Innovation is still occurring, and much of it isn’t occurring at Facebook or Google’s headquarters. One of AT&T’s stated justifications for merging with Time Warner was to better take on big tech, and we now know some of how they plan to do that. AT&T can use its customer data to individually target consumers through both television and online advertising. Which means that two neighbors watching the same show could be seeing different ads depending on their preferences. AT&T’s offer of consistent marketing across the two biggest forms of customer engagement — television and online — will be tough to beat.
This robust competition explains why, for the first time, eMarketer has projected Google and Facebook’s share of online advertising to actually decrease this year. Google’s share of online advertising contracted for the first time in 2016.
As we all learned in Econ 101, in healthy markets success attracts competition. The success of Google and Facebook in advertising is doing just that, and the ease of entry for Amazon and others demonstrates a marketplace of robust competition. The current advertising market is not one that is in strong need of regulatory intervention. While it would be unwise to not monitor these markets for so-called per se offenses (offenses, like collusion, that have no redeeming competitive value), larger antitrust claims of monopoly power are unlikely to hold water.