What defines a market?

The recent US government vs Meta case raised the question of what constitutes a market. At stake was Meta’s ownership of several prominent and lucrative business arms. In this case, the definition of a ‘market’ was not an abstract notion, but a very practical and strategic business knowledge. 

In the civil case between Federal Trade Commission (FTC) and Meta Platforms, the FTC argued that the platforms of Facebook, Instragram and Snapchat compete in a market providing ‘personal social networking’ (PSN) services. However, the ruling judge stated that these social medial platforms compete in a wider video entertainment market (following Meta’s line of argument). The judge stated that the market in question has evolved to become one that “primarily show users short unconnected videos recommended by algorithms….Both apps are pushing still further in that direction.” (Kang, 2025).

The place where goods and services are exchanged (i.e. a market) can be both physical and digital in nature. Defining a physical market is relatively straight forward. As the shopping experience has changed, along with the nature of goods sold, so too have the physical markets. Physical markets can be a single location or an immediate geographical area where several sellers are located and buyers travel to interact with these sellers. Hotelling’s Law helps explain why firms with physical stores often cluster together in an immediate geography. A digital market may mimic a single location physical market. Online platforms like Amazon, Shopee, AliExpress, and Flipkart host many sellers and customers browse products. However, digital markets may also comprise a collection of separate apps or websites. In such a case, the similarity of the products sold online constitute a digital market.

Physical & digital

Irrespective of whether a market is physical or digital, there are four (4) elements that define a market. These are:

1. Clear and commonly understood structure / mode to bring consumers and sellers together;
2. Common knowledge of what general and specific products can be sold and bought physically or digitally;
3. Attributes of a product or service needs to be common across providers (Substitutes); and
4. Consumers recognize that a sufficient number of products or service attributes are common and acknowledge products / services as substitutes (Tastes and Preferences).

The FTC vs Meta Platforms case was lost due to uncertainty regarding the last two of these elements. But all four elements are relevant to the case.

1.  Applications (or Apps) are the understood mode that brings consumers and sellers together.

• A range of services and experiences are available through ‘social media’. These include: connecting with ‘friends and family’ (F&F), sharing, and watching video entertainment and specialized social networking apps.  

“Meta and others distinguish between the F&F sharing experience on PSN apps and the experiences offered on other types of apps, like video entertainment apps (e.g., TikTok and YouTube), interest-based apps (e.g., X), specialized social networks (e.g., Strava and LinkedIn), and mobile messaging apps (e.g., Apple Messages)”(FTC, 2025, p.17: post-trial statement of fact).

Figure 1: sign-up pages for Facebook and Instagram that highlight connection with friends and family.

1. A common way of thinking about consumer demand is that consumers desire not a whole product, but a collection of a good’s attributes. Kelvin Lancaster (1966) gives the example of car color. The same car, in all respects, expect for color is it the same product or a different product. Is the red Ferrari different from a white Ferrari?

With respect social media apps, technical attributes appear very similar. A range of media may be shared, either directly to an individual(s) or made public. However, some apps emphasize sharing messages/images or created video content. While many social media apps allow sharing/posting of short videos, some emphasize this attribute and are known by consumers for such services. Other apps don’t emphasize particular types of media sharing.  

In the FTC vs Meta Platforms case, the FTC argued that “Video entertainment apps like TikTok and YouTube are not a reasonable alternative for F&F sharing” (FTC, 2025, p.20: post-trial statement of fact).

• Ultimately, a market is defined by the perceptions of consumers of whether products are substitutes. The FTC argued that ‘social norms’ – “a shared standard of acceptable behavior by a group” (Wikipedia, 2025) – define the perceptions of consumers. Therefore, for the FTC to be an effective substitute an “F&F sharing” app must be sufficiently defined as such by social norms. 

“Non-PSN apps like TikTok, YouTube, X, and Apple Messages lack the requisite functionality and use and are not reasonable alternatives for the purpose of a friends and family social networking experience” (FTC, 2025, p.4: post-trial statement of fact).

For students of economics the definition of a market is often incidental. In the legal and business worlds the definition of a market has significant implications. In the legal case between FTC and Meta Platforms, the definition of a market decided whether Meta would need to sell some of their social media platforms. In the case of ordinary businesses, knowledge of specific markets, the attributes of goods and services sold by other firms, is likely to define a product and market strategy to compete. Correctly defining a market involves detailed knowledge of related products and consumer perceptions. 

References

Federal Trade Commission (2025). Federal Trade Commission’s post-trial findings of fact. https://www.ftc.gov/system/files/ftc_gov/pdf/Plaintiff%20Federal%20Trade%20Commission’s%20Post-Trial%20Findings%20of%20Fact..pdf (Accessed: 21.11.2025).

Kang, Cecilia (2025). Meta did not violate Antitrust law, judge states. New York Times, 18.11.2025.https://www.nytimes.com/2025/11/18/technology/meta-antitrust-monopoly-ruling.html (Accessed: 22.11.2025).

Lancaster, K.J. (1966). A new approach to consumer theory. Journal of political economy, 74(2), pp.132-157.

Reuters (2025). Meta defeats antitrust case over Instagram and WhatsApp acquisitions. Jakarta Post, 19.11.2025. https://www.thejakartapost.com/business/2025/11/19/meta-defeats-antitrust-case-over-instagram-whatsapp-acquisitions.html. (Accessed: 19.11.2025).