- Barriers to entry — Market power — Rights — Internet — Technology
This chapter examines traditional network effects in the Facebook/WhatsApp merger to assess how entry barriers can be higher in multi-sided markets, where one side exhibits traditional network effects. Despite the absence of traditional entry barriers due to their online nature, the Facebook/WhatsApp merger raised the traditional direct network effects with which enforcers and courts are most comfortable. The merger involved classic direct network effects in two different product markets: texting apps and social networking. Recognizing how the texting apps could be susceptible to these direct network effects, the European Commission did not end its analysis on the ‘traditional’ entry barriers. The value of a texting app, the European Commission found, increases as more and more people use that particular app. Thus, Facebook and WhatsApp both enjoy traditional network effects, whereby one’s utility from the product increases as others use the product.
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