Economic Experiments Weaken the FTC’s Case Against Meta

When TikTok briefly went dark in the U.S. following the passage of a new law mandating its sale to a U.S. entity in early 2025, it incidentally proved that Meta faces strong competition in the social media space. Specifically, the blackout proves that the Personal Social Networking Services (PSNS) market devised by the Federal Trade Commission (FTC) is too narrow and excludes ardent rivals to Meta’s platforms, particularly TikTok. This evidence, which Judge James Boasberg recently ruled the FTC cannot exclude, puts another dent in the FTC’s antitrust case against the tech firm, which claims that its acquisitions of Instagram and WhatsApp over ten years ago were anticompetitive and harmed users.

Establishing monopoly power is an essential aspect of any monopolization case tried under Section 2 of the Sherman Act, as this case is. One way to prove monopoly power involves defining a relevant market. From an economic perspective, the relevant market would include all effective substitutes for the product being produced by the defendant firm. Economists establish the existence of substitutes by looking at cross-price elasticities.

Cross-price elasticities measure how the consumption of other products changes in response to a change in the price of a specific good. For example, if the price of butter increases, we may see a significant increase in the consumption of margarine. However, precisely making this calculation often requires consumption data that are not always available. In digital markets (like social media), quantifying elasticities can be even trickier since these services sometimes carry prices of zero.

The TikTok blackout thus provides important evidence of substitutability between Meta and other platforms. It amounts to a “natural experiment” that shows which apps TikTok users switch to when the cost of using TikTok rises. To analyze this, economists use a “difference-in-differences” (DiD) approach, which in this case takes U.S. users as a treatment group and a control group ideally similar in every way to the U.S. users except for the TikTok ban. The analysis examines the rate of switching for each group before and after the ban, then calculates the difference between these two rates to illustrate the effect the ban had on U.S. users switching to other apps.

Working within this framework, Meta’s expert economists found that, during the U.S. TikTok outage, many users switched to competing platforms, including Meta, which suggests the FTC’s PSNS market is too narrow. These findings are backed by another research paper, which made clear that “[b]ased on survey data, if TikTok were banned, users would largely spend more time on Facebook, YouTube, and Instagram.” This study also exploited the U.S. TikTok outage and employed a DiD approach to demonstrate that advertisers largely switched to Meta during the shutdown—exactly as predicted.

The FTC’s experts provided several arguments against using the TikTok blackouts as evidence of substitution. One argument referenced the “cellophane” fallacy, so named for the product at issue in the antitrust case where it was expounded. This fallacy occurs when economists measure substitution away from a product that already has a monopoly price rather than a competitive price. However, the FTC established no competitive benchmark in the case that could be used to prove that the cellophane fallacy is relevant here. In fact, the products in question are offered to consumers at no cost.

Indeed, reasonable substitution between the platforms was confirmed by one of Meta’s expert economists, John List, at trial. List conducted a modified “synthetic control” version of the DiD method to find the same result with respect to the TikTok blackout that began in India in 2020, when the platform was banned in that country. List explained that the ban led to a significant increase in engagement with Meta’s products in India. Here, the cellophane fallacy argument is mitigated by the fact that, in addition to rivals in the U.S., Meta faces competition in India from local apps, such as ShareChat.

Another FTC argument relates to asymmetric substitution. TikTok users switching to Meta doesn’t mean that the reverse would be true if Meta experienced the blackout instead. Nonetheless, saying that the TikTok blackout doesn’t conclusively prove that TikTok is a substitute for Meta doesn’t prove that it is not a substitute for Meta either. Indeed, it is generally true that if Y is a substitute for X, then X is a substitute for Y.

Another study conducted by List for the trial expressly highlighted substitution from Meta to TikTok through a field experiment. In the experiment, users were paid an hourly rate to allow the researchers to track their app usage on their devices. A treatment group was then paid extra not to use Facebook, Instagram, or WhatsApp. When these users switched to other apps, it was more likely to be TikTok or YouTube than the services that were included in the FTC’s PSNS market: Snapchat and MeWe.

This study is also relevant to another argument: The ban is akin to imposing a prohibitively high price on the service. Better evidence of substitution would come from smaller increases in the cost of using it. This is known as the “SSNIP” test, which measures user switching when a “small but significant increase in price” is imposed on a product or service. However, the field experiment did raise prices incrementally by increasing the reward for not using Meta’s apps.

Both the TikTok bans and the field experiment point to the same conclusion: TikTok, YouTube, and Meta’s apps are seen by users as close substitutes and should have been included in the relevant market devised by the FTC. Moreover—as Meta has argued in its motion for summary judgment—Meta and TikTok have substantially similar features, indicating they are close and symmetrical substitutes.

In delineating the relevant market, the use of economics can help prevent market “gerrymandering,” where plaintiffs construct the market in a way that bolsters their claim that the defendant has monopoly power. The TikTok blackouts and studies conducted by Meta’s economic experts suggest that the PSNS market defined by the FTC does not capture the actual competition faced by Meta in what is likely a broad attention market that includes non-digital goods. This significantly undermines the FTC’s theory that Meta has monopoly power and points to a likely victory for Meta in this case.