Regulating Digital Platform Monopolies: The Case of Facebook

Abstract

We construct and analyze a general model of digital platforms, determining conditions under which government interventions raise welfare. We calibrate our model using stated choice experiments on over 57,000 US Internet users. Facebook creates $14 billion in surplus per month, concentrated among female and older users. We simulate six proposed policy interventions. We find a 3% tax on Facebook's ad-revenue raises welfare by 1.1%, by shifting Meta's incentives towards maintaining a larger platform. Achieving perfect competition, while preserving network effects, would raise surplus from Facebook by 4.8%. A "data-dividend" rebate of profits to users would increase surplus by 30.3%.

Keywords: Multi-Sided Platforms, Network Effects, Taxation, Regulation, Social Media, Facebook