The Federal Trade Commission’s (FTC) ongoing antitrust case against Meta has brought network effects into the spotlight, as the agency’s complaint and opening statement both lean heavily on networks as a source of competitive harm.
But the commission’s arguments fundamentally misunderstand how network effects interact with competition in digital markets. Far from being solely anticompetitive moats, network effects create nuanced competitive dynamics that the FTC fails to acknowledge.
Network effects arise when a product’s value increases as more users join. In Meta’s case, this means Facebook becomes more valuable to users when their friends and family are there, too. The FTC views these effects primarily as harmful barriers to entry, pointing to Meta internal documents in which CEO Mark Zuckerberg noted in 2012: “our network effects are substantial, your friends are all here… and that’s hard to leave behind.”
But the FTC’s argument (and Zuckerberg’s in 2012) relies on a static view of competition. It assumes network effects create permanent barriers, rather than advantages that can be overcome through innovation. It overlooks how quickly digital markets evolve, with the failures of countless other social networks demonstrating that network effects offer no guarantee of continued success.
This perspective, however, misses crucial economic realities. As David Evans and Richard Schmalensee point out in a summary piece, drawing on their own research:
Though network effects are important for multisided platforms, the simple winner-take-all notion that they always give larger platforms an insurmountable advantage over smaller rivals has been disproven by numerous counterexamples.
Network effects aren’t inherently anticompetitive; they’re a natural feature of many successful platforms that create significant consumer benefits through better matching, more content, and improved experiences.
In social media, it can be hard to leave a given platform because it’s where all your friends are. I sometimes think about leaving Twitter/X.com but it’s still very valuable to me. That’s not a harm to me. And that’s fundamentally different than a case where it’s hard to leave because other competitors are junk. The harm, if any, comes not from network effects themselves, but from specific actions that restrain trade or artificially raise rivals’ costs.
But the real thing that the FTC is missing (understandably, since they are arguing a one-sided point) is that, when it comes to networks like social-media platforms, the growth dynamics work both ways. The same forces that drive explosive expansion can trigger rapid collapse. Every new user makes the platform more attractive to others, accelerating growth. But this also works in reverse. When people start leaving the platform, each departure makes the network less valuable to those who remain, potentially triggering a mass exodus that feeds on itself.
MySpace demonstrates this perfectly: once users began leaving, network effects operated in reverse, hastening its collapse. As Joseph Farrell and Paul Klemperer put it in their overview of the literature on network effects and competition:
Such “competition for the market” or “life-cycle competition” can adequately replace ordinary compatible competition, and can even be fiercer.
Think about TikTok. There’s been lots of focus on whether TikTok should be considered in the same market as Facebook and Instagram. Let’s put that aside. If we look at it just as a study in network effects, TikTok’s explosive success further undermines the FTC’s argument. Despite Facebook’s massive network, TikTok rapidly gained hundreds of millions of users by offering a superior experience. This demonstrates that network effects don’t prevent new entrants from capturing market share when they innovate effectively.
The proper question isn’t whether network effects exist (they clearly do) but whether Meta engaged in specific anticompetitive actions beyond simply having network effects. Did Meta artificially raise rivals’ costs? Did it engage in exclusionary conduct beyond standard competition?
Meta’s scale and network certainly provided advantages, but characterizing these as inherently anticompetitive misunderstands market dynamics. That scale and the breadth of the network was exactly what consumers wanted. As users increasingly value innovation over mere presence, network effects may actually increase market contestability by amplifying both gains and losses in user preference.
Antitrust scrutiny of networks is warranted, but the FTC’s case here would be stronger if it focused on specific exclusionary practices, rather than network effects themselves. Users ultimately choose platforms based on quality, features, and experience—not just where their connections reside.
