As a federal court weighs whether social media giant Meta is an illegal monopolist, new Stanford research sheds light on a key issue in the Federal Trade Commission’s bid to force the company to sell its Instagram unit: Would divesting the popular photo- and video-sharing service benefit users and increase competition among social media companies?

The study, released as a working paper by the National Bureau of Economic Research, examines a central component of that question – the impact of an Instagram divestiture on digital advertising. Online ads – which make up an estimated 63 percent of the $770 billion annual global ad market – are the primary way that social media companies make money. But how a social network displays those ads has a big impact on users’ experience and whether they stick around, which in turn affects advertising sales.

The research – from Hunt Allcott, a senior fellow at the Stanford Institute for Economic Policy Research (SIEPR) and Justin Katz, a Harvard PhD student in business economics and the study’s first author – looks at what would happen if the Federal Trade Commission (FTC) wins its argument that Meta has abused its monopoly power over “personal social networking services,” which the government says primarily consists of Instagram, Meta-owned Facebook, and Snapchat.

Drawing on evidence from existing studies of social media user behavior and their own novel experiment, Allcott and Katz find that requiring Meta to spin off Instagram would, based on the FTC’s narrow definition of the social media market, increase competition for advertisers – but not for users.

Ad prices would fall as Facebook and Instagram battle each other for ad dollars and target more ads at users, as a result, the researchers write. Users on the now-competing platforms would see more ads – including the same ones on both platforms, which the researchers show could lead to lower click-through rates. Instagram would be the underdog, as Facebook’s much larger “captive audience” would give it the advantage in attracting advertisers. In response, Instagram would target users with even more ads, and at lower prices, than Facebook.

Bottom line, write Allcott and Katz: From a digital advertising perspective, an Instagram sale would ultimately “harm users [and] benefit advertisers.”

This isn’t good news for the FTC, which sued Meta in 2020 on the grounds that it acquired Instagram in 2012 and WhatsApp two years later with the intention of using its market power to squash competitors. The case is now awaiting a U.S. District judge’s decision after a six-week trial this spring.

Katz cautions that their study isn’t saying that an Instagram spin-off would necessarily be the wrong solution if Meta is ruled a monopolist. While the effects on digital advertising are significant, “there are other reasons why a Facebook-Instagram separation might be beneficial,” he says. “This includes encouraging other platforms to enter the social media market or investments in other aspects of the user experience, like better privacy protections.”