Williamson, Pigou and Demsetz on Social Media

Abstract

Monopolies traditionally increase prices by reducing output, creating a social deadweight loss. Social media networks have found a way to gain market power and lessen competition in the markets in which they dominate. However, their market power manifests itself in ways that are different – indeed, on their face, they mirror-image – those of a traditional monopoly. Their output is virtually unlimited, access is made available to all, and their services are offered at zero-price. Although social media platforms require no monetary payment, users face a “hidden cost” for the services they receive – the time and attention taken by the advertisements. In turn, social media companies sell users’ attention for a profit to advertisement agencies. Recasting some well-known ideas put forth by Williamson (1968), Pigou (1920) and Demsetz (1968), this paper examines the challenges in the regulation of the so-called “attention economy,” and considers how existing antitrust instruments (designed to regulate monopolistic markets, with low output and high prices) can be applied to address the problems posed by e-monopolies and social media networks (with unlimited output and “zero price”).