MSG Team's other articles

11530 The AT&T – Time Warner Merger

AT&T is one of the biggest phone companies in the world. In fact, this was the company that first started building telephones. On the other hand, Time Warner is a giant in the media space. It owns major media channels like HBO and CNN. Each of these companies is gigantic in their own right. This […]

12438 Benefits of BPO to the Target Countries

In previous articles we have seen how the BPO phenomenon benefits the Western countries (US, Europe etc) by slashing the costs of the firms who outsource their back office work. In this article, we look at how the BPO phenomenon is transforming the economies of the countries that are the recipients of the outsourcing phenomenon. […]

10298 Marketing Channel Systems – Meaning and Important Concepts

Introduction The last two decades have changed the way business is getting conducted. Some businesses are still using traditional channel systems but advent of the Internet has revolutionized distribution channels. Companies are changing business models to leverage Internet advantage. With open proliferation of information, customer expectations are reaching new heights. Companies need to figure out […]

9740 HR Metrics and Workforce Analysis

HR Metrics and Workforce analysis is a useful strategic tool for HR which shares information and evidences about the functioning of the entire system by relying on facts and figures, as opposed to mere assumptions or personal opinions. Over a period of time, the HR Metrics has evolved with the usage of more quantitative and […]

9806 Similarities and Differences in Implementation of Quality Frameworks in Manufacturing and Service Sector

Introduction A production defect in a company like GE (General Electric) might result in that specific product or the part being removed from the assembly line and not sent out as finished product. However, in the service sector, a process error might prove to be costly as in the case of the JPMC or Citigroup […]

Search with tags

  • No tags available.

The recent Cambridge Analytica scandal has ended up putting companies like Facebook in hot water. The common man has now become aware of the fact that companies like Facebook have access to a lot of personal data. They have also become aware of the possibility that Facebook could use let third parties access some of this information. This resulted in a public outrage over the information Facebook holds about common people. Politicians were quick to jump in to score some brownie points. Mark Zuckerberg was summoned by Congress. It is now likely that Facebook and other social media companies might end up being regulated.

However, is regulation something that companies like Facebook want to avoid? The reactions from the Facebook founder, Mark Zuckerberg prove that Facebook is somewhat eager to be regulated. This comes as a surprise to free-market advocates who believe that big businesses want to avoid regulation as much as possible. Mark Zuckerberg seems to be embracing regulation and even rooting for it! In this article, we will have a closer look at how Facebook is likely to benefit if more regulation is increased in the social media space.

How Regulated Markets Work?

Dominant firms are always in favor of regulated markets. Mark Zuckerberg was quoted by journalists talking about regulation even before the Cambridge Analytica scandal broke out. He was of the opinion that there is no question that social media firms need to be regulated. However, the correct model of regulation is something the firms and the governments should figure out together.

This should come as no surprise. Facebook is in favor of regulated markets because such regulations will prevent the inflow of competitors into the market. This will allow Facebook to develop an even more dominant monopoly wherein they do not really need to care about the thoughts or opinions of their customers since the customers will have no real alternative. The real reason regulations are being considered is not to prevent Facebook from misusing customer data in the future. Instead, these regulations are meant to create an intervention that reduces the threat from new players.

Regulations Create Barriers To Entry

Regulations work in a favorable way for the incumbent firms. These regulations create new rules and regulations that newer firms need to comply with. The compliance happens on two levels, i.e., once during the inception of the firm and then during the course of conducting regular operations. In both these cases, the incumbent firms have several benefits over the new competitors.

  • Since companies like Facebook are already on the market, they do not need to obtain licenses from regulators. These licenses can be extremely expensive and add to the costs faced by newer firms. Hence, there is an inherent difference in the cost structure wherein the incumbent firms have a sustainable competitive advantage.
  • The costs of compliance can also be extremely expensive. These costs are not distributed asymmetrically. This means that this cost affects incumbents as well as existing firms in a similar manner. However, since established firms like Facebook have a much bigger turnover than competing firms, these costs add up to only a small percentage of their costs. On the other hand, they can significantly add up to the costs of the new firms.

To sum it up, regulation changes the cost structure of the industry to be in favor of incumbent firms. This is the reason why all regulated firms in the world tend to be monopolies or closely controlled oligopolies. Facebook wants to ensure that the social media market also becomes a monopoly. Hence, it is itself lobbying to introduce regulation.

Facebook Can Have An Undue Influence On Regulators

Facebook is known to have deep pockets. Its ability to influence politicians is well known. Facebook spends billions of dollars on lobbying and controlling politicians. This is opposed to zero dollars that most startups would be able to spare for this kind of activity. It is, therefore, no surprise that when these laws are written, Facebook will have a tremendous influence. The common man is not going to spend time trying to figure out if these regulations are fair. The media will not publish articles about this because they will receive payoffs from Facebook. Simply put, Mark Zuckerberg wants to legislate his opponents out of existence. He knows that there are no real competitive barriers in the tech industry. Hence, anybody can create a website that may someday rival Facebook. Regulation is an effective way to prevent this from happening.

Facebook Is Not Immune To Competition

Many proponents of Facebook have been saying that Facebook does not need to do this since it has virtually no competition at the moment. However, these people do not realize how the tech industry works. When Orkut and MySpace were ruling the roost, Facebook was just a tiny startup. However, over time Facebook has come to become the dominant player. Similarly, someone else could also overtake Facebook! These are just pre-emptive measures being taken by Facebook to maintain its dominance. Also, it needs to be understood that Facebook is losing several customers in the sub 25 years demographic. Competitors like Snapchat are quickly catching on. Facebook needs to consolidate its monopoly power in order to continue to be the number one social media firm in the world.

Article Written by

MSG Team

An insightful writer passionate about sharing expertise, trends, and tips, dedicated to inspiring and informing readers through engaging and thoughtful content.

Leave a reply

Your email address will not be published. Required fields are marked *

Related Articles