Economics Expert Witness’ Opinions Cannot be the Basis for Finding Antitrust Injury
Posted on January 29, 2025 by Expert Witness Profiler
In this antitrust action, separate Plaintiff groups of users and advertisers sued Meta Platforms, Inc. (Meta), for alleged anticompetitive conduct under the Sherman Act and California state law in connection with the Facebook social-networking app.
The user group, headlined by named Plaintiffs Maximilian Klein, Sarah Grabert, and Rachel Banks Kupcho, alleged that Meta illegally acquired and maintained a monopoly in the “personal social network services” (PSNS) market “through repeated misrepresentations over its data collection and use practices” that “deprived its competitors of the ability to compete.” The user Plaintiffs have asked to certify a class of all persons in the United States who used a Facebook profile between December 2016 and December 2020.
The certification request rises or falls on the validity and reliability of the opinions of the user Plaintiffs’ economist, Nicholas Economides, with respect to antitrust injury and other elements required for proof of a monopolization claim. Meta asked to exclude the opinions of Dr. Economides under Federal Rule of Evidence 702 and related cases.
Meta illegally acquired and maintained a monopoly in the PSNS market
The user Plaintiffs’ main allegation is that Meta illegally acquired and maintained a monopoly in the PSNS market by deceiving users into believing that Facebook’s data collection and privacy practices were more protective than they actually were.
In Plaintiffs’ view, these false assurances prevented other firms from effectively competing in the alleged PSNS market. The user Plaintiffs contended that this barrier to competition injured them in a manner contemplated by the antitrust laws.
For the request to certify a class comprised of millions of Americans who used Facebook over the span of four years, the user Plaintiffs advance a single theory of antitrust injury. The theory is that, but for the misrepresentations about data privacy, Meta would have found itself in a competitive PSNS market that would have forced it to pay users for their data to retain robust user engagement. This theory is based entirely on the report of Economides, who opined that “Facebook would have compensated [users] a certain amount per month for their data in the but-for world where [users] knew the truth about Facebook’s data practices, because the alternative would have led to an unacceptable loss of market share for Facebook.”
Economics Expert Witness
Nicholas Economides is an internationally recognized academic authority on network economics, electronic commerce and public policy. His fields of specialization and research include the economics of networks, especially of telecommunications, computers, and information, the economics of technical compatibility and standardization, industrial organization, the structure and organization of financial markets and payment systems, antitrust, application of public policy to network industries, strategic analysis of markets and law and economics.
Professor Economides has published more than 100 articles in top academic journals in the areas of networks, telecommunications, oligopoly, antitrust, product positioning and on the liquidity and the organization of financial markets and exchanges. He holds a Ph.D. and M.A. in Economics from the University of California at Berkeley, as well as a B.Sc. (First Class Honors) in Mathematical Economics from the London School of Economics. Previously, he taught at Columbia University (1981-1988) and at Stanford University (1988-1990).
Discussion by the Court
Economides starts with the general observation that, in competitive markets, “sellers must lower their prices or else lose market share.” He starts with the general observation that, in competitive markets, “sellers must lower their prices or else lose market share.”
This observation requires immediate modification for the alleged PSNS market because, as every online denizen knows, Facebook and other social-networking apps are provided without charge to users. Economides attempts to account for this fact by saying that, although users do not pay Meta to use Facebook, Meta “charges a price to users in the form of data collection and use.” He then proposes that, in a but-for world where competition in the PSNS market was not illegally constrained as alleged by plaintiffs, rival apps would offer “more competitive privacy practices” than Facebook, which would compel Meta to compete through “a reduction in the effective price of using Facebook.”
Economides postulated that this “reduction in the effective price” would take the form of a “negative price,” by which he means an affirmative payment by Facebook to users for their data. He quantified this but-for payment to be $5.00 per user per month.
Consequently, Economides concluded that the putative class of users suffered antitrust injury by being “overcharged” by Facebook, in that they were not affirmatively paid a flat rate of $5.00 per month for using Facebook, and that this resulted over the relevant class period in “total damages to the Class of $52.8 billion (pre-trebling).”
Meta’s Motion To Exclude Economides’ Testimony
Meta stated that Economides’ antitrust injury opinions amount to ‘junk science’ and should be excluded from the case under Federal Rule of Evidence 702 and the familiar standards set by the Daubert line of cases.
In Meta’s view, “the mere theory of ‘negative price markets’ . . . cannot bridge the analytical gap between how [Facebook] actually competes for users and how Economides speculates it would.”
Economides’ Antitrust Injury Opinions
Meta did not challenge Economides’ qualifications, and rightfully so. The record indicated that he is a qualified antitrust economist.
Meta’s main criticism was that Economides’ antitrust injury opinion, namely that Facebook users suffered the loss of direct payments for their data that they assertedly would have received in the but-for world, was unsupported by the record.
The necessary links in Economides’ theory of antitrust injury are: (1) Meta competes on price and quality (2) in the but-for world without the alleged data-privacy deception, Meta would face greater competition from rivals with respect to privacy practices (3) in response to greater competitive pressure, Meta would compete on price instead of quality to avoid losing users to rivals (4) even though the price for using Facebook is “zero,” in the sense that no money is exchanged, economic theory recognizes that competitive conditions in certain markets can result in “negative” prices (5) accordingly, Meta would pay users a “negative” price to retain them instead of collecting less data.
Because Economides cited credible sources for the various economic concepts he applied, the Court saw no basis for concluding those theories and principles themselves are not well accepted in the field of economics.
In response to greater competitive pressure, Meta would compete on price instead of quality to avoid losing users to rivals
Meta did not challenge Economides’ belief that Facebook would not change its data-collection practices in the but-for world. Rather, the thrust of Meta’s challenge to his opinions on antitrust injury concerns the third link described above that Facebook would choose to compete on price instead of quality in the but-for world to avoid losing users.
To be sure, Economides relied on economic literature discussing the theory and existence of negative prices in online and double-sided platform markets, which are the types of markets the PSNS market is said to be. However, the Court held that economic theory alone does not make his opinions admissible.
In addition, the user Plaintiffs did not even allege, let alone establish with evidence, that any other participant in the PSNS market has ever competed by paying users. In telling contrast, Meta provided evidence that firms in the PSNS and adjacent markets have never competed via “negative” prices.
The record undercuts the third link in Economides’ theory by demonstrating that firms in the PSNS market, including Meta, have consistently competed on the axis of quality through better content, functionality, services, and the like to keep users engaged and the stream of user data flowing, even if the firms theoretically could compete on price. The Court held that this undisputed record about the real world, and the lack of any meaningful contrary evidence, is a big red flag for Economides’ theory.
Also, citations to economic literature did not demonstrate that the economic principles of zero-and negative-price markets were reliably applied to the facts of this case.
Overall, Economides did not identify reliable and validated economic literature to support his specific conclusion that, upon coming to the proverbial fork in the road between quality and price, Facebook would choose price in the but-for world
Lack of Sufficient Factual Grounds
Besides, Economides pointed to research initiatives where Meta paid individuals in test groups to permit Meta to harvest and use a range of data from them. The problem for Economides is that these market-research programs entailed payments for user data outside the context of Facebook’s social-networking services, where Meta is not already “bartering” for user data with Facebook’s services and the quality thereof.
The problem of factual fit also affected Economides’ opinions about Meta’s internal discussions of paying users. The Court held that the two discussions that he highlighted actually concerned user data that Meta could not or did not already obtain through Facebook’s social-networking service.
A third proposal discussed by Economides arose in the context of Apple’s 2020 App Tracking Transparency (ATT) feature, which required apps running on Apple products to “obtain users’ agreement to ‘track’ users (i.e., collect and use their data) outside that app” through a pop-up prompt. This proposal contemplated paying a “data dividend” (i.e., money for relevant purposes) “to users to incentivize them to continue providing their data to Facebook” when confronted with the ATT prompt. The Court found Economides’ analysis of this proposal and its relevancy perfunctory to the point of being of little utility.
To be sure, a fourth and final proposal did contemplate “paying users for access to their personal information” as part of a “transparent approach to privacy that should become the model moving forward.”
The Court held that this idea alone, which Meta ultimately rejected, is too thin a reed on which to base the sweeping extrapolation Economides makes that Meta would pay all U.S. users money every month for using Facebook.
Analysis
Even taken as a whole, the Court held that the four proposals did not provide “sufficient factual grounds” for the third necessary link in Economides’ theory.
For all four, he opined that “Facebook recognized that the data it was collecting and using was responsible for much of its revenue and that it would make economic sense to compensate users in order to get that data (rather than lose it).”
But that conclusion does not necessarily follow from the starting point. Economides never explained why Meta would focus exclusively on answering new competition by paying users. There is no doubt, as he says, that Meta makes a lot of money from user data, but he did not demonstrate that Meta would be compelled to retain users by paying them, rather than through innovations in services and product quality. This shortfall goes beyond merely ignoring evidence that Meta in the real world has consistently competed on the basis of quality.
Consequently, the Court concluded that Economides’ opinions cannot be the basis for finding antitrust injury in this case.
Held
The Court granted in part Meta’s motion to exclude Economides’ opinions about antitrust injury. The Court denied the user Plaintiffs’ renewed motion for class certification.
Key Takeaway:
There is simply too great an analytical gap between the facts on which Economides relies and that third link in his theory. The purpose of the Court’s inquiry under Rule 702 is to “ensure that proposed expert testimony imparts ‘scientific knowledge’ rather than guesswork.” Because that necessary third step in his theory of antitrust is without basis, and so rests on guesswork, the Court cannot conclude that Economides’ methodology and opinions are reliable and consequently admissible.
An expert’s job is to consider existing data and make inferences, hypotheses, and extrapolations, and “for this reason, ‘an expert is permitted wide latitude to offer opinions.'” Even so, there must be a sound foundation in the evidence to support every step on the way to their conclusions.
Case Details:
| Case Caption: | Klein Et Al V. Meta Platforms |
| Docket Number: | 3:20cv8570 |
| Court: | United States District Court for the Northern District of California |
| Order Date: | January 24, 2025 |
