NEW YORK – Facebook recently announced plans to merge its three messaging services--WhatsApp, Instagram, and Facebook Messenger--reigniting antitrust concerns, not even a decade after acquiring Instagram and WhatsApp. According to new research from Andrea Prat, Richard Paul Richman Professor of Business and a Chazen Senior Scholar at Columbia Business School, this concentration of market power impacts the ability of small businesses and startups to compete for consumer attention, and the level of awareness and product choice available to consumers.
In the paper, “Attention Oligopoly,” Prat and his co-author Tommaso Valletti, professor of economics at Imperial College London, find the legality of online mergers are evaluated based on price-based competition models that, in the marketplace for consumer attention, do not apply.
Since there is virtually no price variation on the users’ side for applications like Facebook and Instagram, the researchers offer a different measure for evaluating the impact of such mergers on the consumer and the marketplace. Namely, they focus on how these platforms, instead of competing for consumer dollars, are competing for consumer attention.
Where platforms have merged and have overlapping users (someone who is an Instagram and Facebook user), the problem emerges. Now, that consumer is seeing a limited number of ads, biased toward incumbent businesses and restricted by increased ad revenue. This concentration of market power excludes entrant companies from being able to compete and indirectly hurts users as they end up having less choice and paying potentially higher prices for products and services in the marketplace.
For more information, please read the related Chazen Institute research brief (PDF).
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About the Jerome A. Chazen Institute for Global Business
The Jerome A. Chazen Institute for Global Business is the interdisciplinary hub of global business knowledge at Columbia Business School. By injecting a global viewpoint into coursework, supporting research on global business, and sponsoring provocative forums where business leaders and policy-makers engage in vigorous debate, we pool the vast wealth of knowledge that exists within Columbia Business School, distill it for people who operate in the world’s marketplace, and provide a global network for lifelong learning.
About Andrea Prat
Andrea Prat is the Richard Paul Richman Professor of Business and a Chazen Senior Scholar at Columbia Business School.
His current research in organizational economics explores issues such as incentive provision, corporate leadership, employee motivation, and organizational language.
He is the author of numerous articles in leading journals in economics and finance including the American Economic Review, Econometrica, the Journal of Finance, the Quarterly Journal of Economics, the Review of Economic Studies, and the Review of Financial Studies. He served as Chairman and Managing Editor of the Review of Economic Studies. He is an Associate Editor of Theoretical Economics and a director of the Industrial Organization program of the Center for Economic Policy Research in London.
Prat received his PhD in Economics from Stanford University.