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Instructions:  View instructions on the section padlet.

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Team:  Students will do one chapter per section.  View your assigned padlet at this link.

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Team:  Students will do one chapter per section.  View your assigned padlet at this link.

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The extent to which a seller can charge a higher price without losing many sales to competing businesses. The more market power you have, the higher the price you can charge.

High prices pose a real problem to customers who are forced to spend more. But a high price is not only a cost to buyers—it’s also a benefit to sellers. When one side pays more and the other side gets more, there’s no overall loss to society. It’s a wash.

Instead, the problem is that market power creates a market failure, because it leads a smaller quantity to be produced than is in society’s best interest. That is, market power leads to under production. The real tragedy is not that some pay higher prices, but that some people can’t afford the higher prices and they go without.

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Markets in which 1) all firms in an industry sell an identical good; and 2) there are many buyers and sellers, each of whom is small relative to the size of the market. If you’re doing business in a perfectly competitive market, you have no market power. Those doing business in a perfect market are price-takers, meaning they take the market price as given and follow along, charging the prevailing market price. Agricultural markets; commodities markets like gold, oil, wheat, and livestock; and the stock market are some of the very few examples of perfectly competitive markets. The dearth of perfect competition is a natural result of managers hustling to accumulate market power by differentiating their products, squeezing out their rivals, and deterring new entrants.

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When there is only one seller in the market. If you’re a monopolist, you have a lot of market power because you can raise your price without losing customers to your competitors. After all, you don’t have any direct competitors. However, pure monopoly is rare. Once you broaden your definition of the market sufficiently, you’ll find that every business faces at least some competition.

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A market with only a handful of large sellers. Managers of oligopolistic businesses are locked in a strategic battle for market share. Their best choices depend on how their rivals will respond, and vice versa. Oligopolies have market power, though not as much as a monopolist. If an oligopoly raises its prices, it loses some customers but not all because 1) rivals may respond by hiking their prices, 2) the needs of some customers of one oligopoly may not be met by another oligopoly, and 3) some customers remain from strong loyalty or inertia.

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Efforts by sellers to make their products differ from those of their competitors. By making each product slightly different from their competitors, sellers hope to make each specific variety especially attractive to a particular group of customers. In turn, sellers figure customers will be willing to pay more for a product that suits them better. This gives the seller market power, because the most devoted followers of a particular brand, style, or product will stick with it, even if the price is higher. Managers also differentiate their products based on brand image, quality, store location, customer service, return policies, and packaging. All in all, the more distinct a product, the less rivals' products will be a close substitute.

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A market with many small businesses competing, each selling differentiated products. The jean market is an example of monopolistic competition. It is monopolistic because there’s only one seller making each specific model of jeans. But it’s also competitive because there are dozens of businesses competing to sell you jeans.

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The structure with the least market power is perfect competition, where many small businesses sell identical products. At the other extreme, monopolists have the most market power, because they’re the only business selling a unique product. Rather than focusing on sharp distinctions between these market structures, it's important to recognize that there’s a spectrum along which some businesses have more or less market power. In reality, few businesses populate the extremes of this spectrum.

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When you face at least some competitors and/or you sell products that differ at least a little from your competitors. Monopolistic competition and oligopoly are examples.

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Five Key Insights into Imperfect Competition 

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Five Key Insights into Imperfect Competition 

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Insight One: Market power allows you to pursue independent pricing strategies.
However, it is a balancing act: raising your price will boost the profit margin on each item you sell, but it’ll also reduce the number of items you sell. Managing this balancing act is crucial to earning a healthy profit.

Insight two: More competitors leads to less market power.
If your customers have many good alternatives to buying from you, they’ll be less likely to stick with you if you raise your price. When new rivals enter your industry, they both grab your market share and reduce your market power. If the competition is fierce enough, your competitors may compete away all of your profits.

Insight three: Successful product differentiation gives you more market power.
The more different your product is from that sold by your rivals, the less likely it is that your customers will find them to be a useful substitute if you hike your price.

Insight four: Imperfect competition among buyers gives them bargaining power.
Imperfect competition among a limited number of buyers makes it important for managers to keep their most valuable clients. This gives buyers a degree of bargaining power which they’ll use to demand lower prices.

Insight five: Your best choice depends on the actions that other businesses make.
The interdependence principle is particularly important in imperfectly competitive markets, as your best strategic choices likely depend on the choices that others make. And their best choices also depend on the decisions that you make.

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Your Firm’s Demand Curve Depends on the Type of Competition You Face

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Your Firm’s Demand Curve Depends on the Type of Competition You Face

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With no market power, raising your price by even a penny will lead you to lose all your customers. Likewise, if you lower your price by just a penny, your competitors will lose all their customers to you, boosting your sales enormously. As a result, your firm’s demand curve is essentially flat because when there are many competitors selling the same product—perfect competition—a minuscule change in price leads to a nearly infinite change in the quantity you sell.

If you are a monopoly—the only seller serving the market—then the quantity demanded from your firm is the same as the total quantity demanded by the entire market. As a result, a monopolist’s firm demand curve is also the market demand curve. Even though you have no competitors, a higher price will still lower the quantity demanded, because your customers still have the option of not buying your product.

The two extremes bracket the more realistic case of imperfect competition, where you have some market power. Unlike perfect competition, you can raise your price without losing all of your customers. And unlike a monopolist, you face some competitors, and so raising your price will lead you to lose market share. Your firm’s demand curve can be relatively flat, or steep, depending on how much market power you have. If you don’t have much market power, then raising your price will sharply reduce the quantity you sell, and so your firm’s demand curve is relatively flat. (Alternatively phrased, it’s highly elastic.) By contrast, if you have a lot of market power, a price hike will lead you to lose very few sales, and so your firm’s demand curve is relatively steep (which is the same as saying it’s quite inelastic).

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An individual firm’s demand curve, summarizes the quantity that buyers demand from an individual firm as it changes its price. A firm's demand curve is a critical input to making smart pricing choices, because it describes the trade-off between selling a larger quantity at a low price versus selling a smaller quantity at a higher price. A firm's demand curve can be discovered by experimenting with price. Offering different prices to different groups of customers, different prices at different locations, or different prices over time are common methods for experimenting with price to discover a firm's demand curve.

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The addition to total revenue you get from selling one more unit.

Marginal Revenue = Output Effect(P) - Discount Effect(ΔP × Q)

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Discover A Firm's Marginal Revenue Curve 

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Discover A Firm's Marginal Revenue Curve 

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Recall we began this section by noting that: You face a trade-off between selling a larger quantity of items versus making more money on each item you sell. Your marginal revenue curve neatly summarizes the terms of this trade-off. It tells you how much you’ll gain from selling a larger quantity of items (we call this part the output effect), less the revenue you’ll lose when you cut your price a bit, so you’re not making as much money on each item you sell (this bit’s the discount effect).

Marginal Revenue = Output Effect(P) - Discount Effect(ΔP × Q)

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Output effect: An extra unit of output will boost revenue by an amount equal to the price of the extra item sold, P.

Discount effect: The decline in revenue as a result of offering a discount to sell an extra unit. The decline in revenue is equal to the discount offered multiplied by the quantity sold, ΔP × Q

Marginal revenue = Output Effect(P) - Discount Effect(ΔP × Q)

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When the demand curve is a straight line, the marginal revenue curve is also a straight line that starts at the same point (when the quantity is one), but it declines twice as sharply.

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Setting Prices and Quantities with Market Power

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Setting Prices and Quantities with Market Power

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Remember:
1) Look down to see your quantity
2) Look up to find the price

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Comparing Market Power and Perfect Competition 

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Comparing Market Power and Perfect Competition 

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Four important lessons follow from this analysis:

Lesson one: Market power leads to higher prices.
Notice that the market power price is much higher than the marginal cost. By contrast, recall from when we studied supply under perfect competition that price equals marginal cost.

Lesson two: Market power leads to an inefficiently smaller quantity.
Market power leads managers to supply less because of the discount effect—they’re reluctant to lower their price because it means they’ll get less revenue from their existing customers. But from society’s perspective, it would be better if managers ignored the discount effect.

Lesson three: Market power yields larger economic profits.
On a per unit basis, your profit margin is the price you charge, less the average cost of production. In the graph, the market power price exceeds average cost, and so the company earns a healthy profit. Thus, businesses with market power earn more profits than they would if they were forced to compete in a perfectly competitive market. This is why managers work to preserve and enhance their market power.

Lesson four: Businesses with market power can survive even with inefficiently high costs.
The profitability conferred by market power leads managers to feel less pressure to adopt cost-saving measures. In the long run, if perfectly competitive businesses are inefficient, they’ll make a loss and eventually close. In contrast, a profitable but inefficient monopoly can stay around for years.

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Competition policy: the set of laws that ensure markets remain competitive.

Anti-collusion laws prevent businesses from agreeing not to compete

Collusion: An agreement to limit competition; typically, an agreement by rivals to not compete with each other, but to all charge high prices instead. When businesses in the same market try to limit competition between them—by agreeing not to offer lower prices or better products—they gain market power. Colluding businesses can effectively agree to act as if they were a single entity—a monopolist—rather than cut-throat competitors. This raises their profits, at consumers’ expense. In an effort to ensure that the forces of competition persist, the government has made many types of collusion illegal.

Merger laws prevent competing businesses from combining to consolidate market power.

There are two reasons why managers may find mergers like this to be profitable. From a consumers’ perspective, the good reason is that a merger might create cost savings, which will eventually feed through into lower prices. The bad reason is that the merger will yield greater market power for the new super-company, because the two companies that merge no longer needs to cut prices to win customers over from each other. Mergers that yield more cost savings benefit society, while those that increase market power harm society. In order to ensure that only beneficial mergers proceed, the Justice Department disallows any merger whose effect “may be substantially to lessen competition, or tend to create a monopoly.”

Being a monopoly is legal; monopolizing a market isn’t.

It’s not illegal for a business to be a monopoly, to hold market power, or even to charge high prices. After all, some large companies acquire their dominant position by outcompeting their rivals. But it’s illegal to attempt to monopolize your industry by taking actions to exclude competitors or prevent new competitors from entering. That’s why exclusionary or predatory practices are illegal.

Encouraging international trade fosters competition.

International trade makes it difficult for any business to build up much market power.

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Laws to Minimize the Harm from Exercising Market Power

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Laws to Minimize the Harm from Exercising Market Power

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A price ceiling limits abuse of market power.

The government can implement price ceilings to limit the extent to which monopolies exploit their market power.If the price ceiling is set at the right level—set equal to the marginal cost—the government can induce businesses with market power to produce the same quantity that they would produce if they were in a perfectly competitive market.

Natural monopolies often lead to government intervention.

Natural monopoly: A market in which it is cheapest for a single business to service the market. This occurs whenever marginal costs continuously decrease as you expand your output. When this happens, competition is never going to work out. The problem is that a new entrant will always be at a cost disadvantage relative to the incumbent.

Regulating a natural monopoly involves difficult trade-offs. The government could prevent a natural monopoly from exploiting its market power by insisting that it set its price equal to marginal cost—which would be in society’s best interest. But then the natural monopoly might end up making a loss. This loss might lead the natural monopolist to quit the industry altogether. To avoid this, the government often ends up providing these services directly, paying for any losses out of its tax revenue.

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Markets in themselves do not guarantee good outcomes. Instead, outcomes depend crucially on how markets are organized.

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I always find these super helpful!

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This video does a great job on explaining Market Power

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What is Market Power? | A Level and IB Economics

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President Biden declared the manufacture and processing of materials used in large-capacity batteries to be critical to national defense on March 31.

This presidential designation allows the federal government to provide financing to assist domestic mining and processing of minerals required in these batteries, such as lithium, nickel, cobalt, graphite, and manganese, which are currently obtained from other countries. Large-capacity batteries are used in electric vehicles and to store energy. The directive is noteworthy because President Biden is utilizing his authority under the Defense Production Act (DPA) to assist in the transition to sustainable energy.

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On March 31, President Biden designated the production and processing of materials used in large-capacity batteries as essential to the national defense.

This presidential designation opens up federal funding to support domestic mining and processing of the minerals used in these batteries, such as lithium, nickel, cobalt, graphite, and manganese, which are currently sourced from abroad. Large-capacity batteries are used in electric vehicles and for energy storage. The order is notable because President Biden is using his authority under the Defense Production Act (DPA) to support the transition to clean energy.

Last year, President Biden set targets for the United States to halve 2005 baseline greenhouse gas emissions by 2030 and become a net-zero emission economy by 2050. The Biden Administration's long-term plan to achieve those targets recognized the importance of battery technology to the growth of both zero-emission vehicles and energy storage.

In his order invoking the DPA, President Biden reiterated that large-capacity batteries are "requirements of the clean energy economy." Noting the US's current dependence on "unreliable foreign sources" for the materials used to make batteries, the order invokes DPA Section 303, which authorizes the president to undertake certain activities to "create, maintain, protect, expand, or restore domestic industrial base capabilities essential for the national defense."

The order identifies three specific activities to receive support:

Feasibility studies for mining, beneficiation, and processing;

By-product and co-product production at existing facilities; and

Mining, beneficiation, and processing modernization.

The immediate impact to domestic businesses engaged in mining or processing materials used in batteries is not yet clear. However, the order is explicit that it does not waive or supersede compliance with permitting requirements or environmental health and safety laws.

Projects authorized under DPA Section 303 are eligible to receive funding from the Defense Production Act Fund, although the order does not specify any source or amount of funds to be used.

© 2022 ArentFox Schiff LLP National Law Review, Volume XII, Number 91

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Biden Uses Defense Production Act to Boost Domestic Mining in Support of Large-Capacity Battery Production

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On March 31, President Biden designated the production and processing of materials used in large-capacity batteries as essential to the national defense. This presidential designation opens up federal funding to support domestic mining and processing of the minerals used in these batteries, such as lithium, nickel, cobalt, graphite, and manganese, which are currently sourced from abroad.

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Massive firms have recently reported tremendous profits and pledged ongoing price rises, even as inflation continues to grow at rates not seen in decades.

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On recent earnings calls, massive corporations have posted huge profits and promised continued price increases, evenas inflation continues to rise to rates not seen in decades.

For example, Starbucks celebrated a 31 percent increase in profits at the end of 2021 - but it still plans to hike prices this year, the New York Times reported earlier this month. Tyson Foods, the meat processing behemoth, raised its prices 19.6 percent overall, driving record stock prices for the company.

Inflation, meanwhile, hit a four-decade high in January, with the consumer price index increasing 7.5 percent over the past year, before seasonal adjustment. Although prices dropped in the energy sector for goods like gasoline and fuel oil, every other sector - including medical care, apparel, transportation, food, and shelter - saw increases, resulting in the largest overall 12-month increase since 1982.

Some of that's to be expected: With Covid-19 still throwing kinks into the global supply chain, the challenge of getting goods and materials where they need to be translates into increased prices for both companies and consumers. Meanwhile, consumers have increased purchasing power due to wage increases and stimulus benefits like checks, child tax credits, and low interest rates - and at least in the US, they've proven willing to pay higher prices. At its core, those are the necessary ingredients for inflation - demand outstripping supply.

But some economists and politicians say that corporations are using inflation as an excuse to jack up prices beyond what's necessary to account for their increased costs. More than just passing those costs onto consumers, they say, corporations are taking advantage of the unprecedented global economic circumstances to increase their profits, simply because they can.

Politicians like Sens. Elizabeth Warren (D-MA) and Sherrod Brown (D-OH) have recently drawn attention to what they say are outsized price increases made worse by anticompetitive corporate behavior.

"Here's the truth about inflation-companies love it.

In reality, companies aren't being forced to raise prices because of inflation. They're raising prices because they can."

You have to watch this video from @dionrabouin. pic.twitter.com/86n5AN9H3s
- Sherrod Brown (@SenSherrodBrown) February 10, 2022

Economists like Nobel laureate Joseph Stiglitz see it too; in a recent column, Stiglitz pointed to the oil industry as a particularly acute example.

"What we are seeing today is a naked exercise of oil producers' market power," Stiglitz wrote of rising energy prices earlier in February. "Knowing that their days are numbered, oil companies are reaping whatever returns they still can."

But there's plenty of pushback, both political and economic, to this perspective. A survey of a number of leading economists by the Initiative on Global Markets at the University of Chicago's Booth School of Business showed that a majority of those surveyed - 67 percent - disagreed or strongly disagreed with the statement, "A significant factor behind today's higher US inflation is dominant corporations in uncompetitive markets taking advantage of their market power to raise prices in order to increase their profit margins." Only 7 percent of those surveyed agreed or strongly agreed with the statement.

"I don't see the logic: U.S. markets have been concentrating for decades but high inflation is [less than] one year old," Massachusetts Institute of Technology economist David Autor wrote in response to the survey.

Biden administration economic advisers, too, are disputing that message; as the Washington Post's Jeff Stein reported on Thursday, messaging about corporate concentration leading to higher prices is currently a live debate within the administration.

President Joe Biden himself, under immense pressure to address inflation, has pointed out market consolidation in a few industries, but hasn't gone so far as to blame it for the longer-term inflation the US is experiencing. "This isn't a new issue," Biden said last month. "It's not been the reason we've had high inflation today. It's not the only reason. But, over time, it has reduced competition, squeezed out small businesses and farmers, ranchers, and increased the price for consumers."

But critics of major corporate price increases aren't arguing that the consolidation is the only force driving inflation; rather, that because these conglomerates hold so much of the market share, they are able to raise prices out of step with the actual price increases they're incurring and passing on to consumers - essentially, that they're using the current inflationary environment as an excuse to raise prices more than necessary because they don't have competitors to drive them to keep prices down, in turn contributing to the problem of inflation.

Corporations have high pricing power, driving higher costs and contributing to inflation

What is clear is that, "we're in a highly unusual context," Gregory Daco, the chief economist at EY-Parthenon, a global strategy consulting firm, told Vox. According to Daco, companies are currently being rewarded for price hikes with higher valuations and stronger revenues, so there's little incentive for them to stop doing so, even if the prices aren't justified by increasing costs to corporations.

Some price raises are to be expected; there are increasing costs to supplies, transportation, and labor, but consumers don't have a way of knowing how those increased costs factor into price rises - and that's something we'll likely never figure out, Daco said.

"I think it's nearly impossible to disentangle what is considered a natural, if we can put that word here, a natural outcome from the Covid crisis, from the massive injection of fiscal stimulus that led to very strong demand, or very strong demand and recovery, and the fact that supply was slower to come back," Daco told Vox, "versus an environment where market concentration is exacerbating these price pressures, because a few dominating firms have the ability to do so."

The inability to dismantle those two phenomena, though, is integral to the ability of certain businesses to continue increasing prices, according to Lindsay Owens, the executive director of progressive economic policy organization the Groundwork Collaborative and a former senior economic policy adviser to Warren.

"The preconditions for the price hikes we're seeing today long predate the pandemic," Owens told Vox via email. "Companies are able to take advantage of a crisis like the pandemic precisely because these foundations were set in place long before the crisis itself. And in corporate earnings call after corporate earnings call, executives are using inflation as a cover for egregious price hikes to boost their own profits."

As you read today's inflation report, pay close attention to what the CEOs who set prices are saying. We got our hands on the latest batch of earnings reports, and it's a doozy. They're literally bragging about hiking prices while hiding behind "inflation." The receipts...(1/7)
- Lindsay Owens, PhD (@owenslindsay1) February 10, 2022

Daco echoed that sentiment, saying, "We are, I think, in a situation where market concentration is exacerbating inflationary dynamics."

Warren has highlighted the meat industry as an egregious culprit, calling for a Justice Department investigation into the industry's practices. "Tyson is abusing their corporate market power and raking in record profits by jacking up meat prices," she tweeted earlier this month. "I've long argued that we need to enforce our antitrust laws to break up monopolies and promote competition, and now it's more vital than ever as a tool to fight inflation."

Tyson is abusing their corporate market power and raking in record profits by jacking up meat prices.

I've long argued that we need to enforce our antitrust laws to break up monopolies and promote competition, and now it's more vital than ever as a tool to fight inflation. https://t.co/KIbMUbM6B4
- Elizabeth Warren (@SenWarren) February 7, 2022

The Biden administration has also planned to inject $1 billion into smaller, independent meat processors to drive "meaningful competition" in the meat market, after a White House Economic Council analysis found gross profits of the top four meat processors soared 120 percent over the course of the pandemic.

"Capitalism without competition isn't capitalism. It's exploitation," Biden said during the January unveiling of the plan. "That's what we're seeing in meat and poultry industries now."

The only thing that will stop corporate price increases in the short term is if people buy less - one way or another

In the short term, corporate price hikes aren't going anywhere so long as people are still willing to pay higher prices, Daco told Vox. "It'll last and be sustainable as long as there is no pushback from consumers," he said. "Essentially, if the price increases that are being passed on to consumers don't weigh on demand, then businesses will continue to push up on prices."

For the time being, that likely means the Federal Reserve will have to act to address inflation. Over the past year, the Fed has repeatedly signaled that the stimulus measures it put into place to aid in the recovery from the pandemic - buying up government bonds and keeping interest rates low - would have to be reversed to counter inflation and get it back to the central bank's target rate, 2 percent.

Now, starting in March, the Fed is widely expected to start raising interest rates, with two more potential hikes coming later in the year, and even more by March of next year. That move tamps down on inflation by making credit - everything from mortgage payments to gigantic corporate loans - more expensive, thus decreasing purchasing power and demand. Slackening demand caused by a tightened monetary supply would send a fairly immediate signal to corporations that it's time to arrest ongoing price hikes.

Other central banks, such as the UK's Bank of England, have already begun to raise interest rates; Daco says the Fed is lagging because it was caught a bit off guard by just how much the Covid-19 pandemic affected the economy.

"I think the Fed was working under the impression that the pre-Covid world would return very rapidly - that we would very rapidly return to a world where the inflation dynamics would be fairly soft, therefore inflation would come back down toward 2 percent, where you would have ongoing labor market gains, where those would not stoke major inflationary pressures," he told Vox. It's clearnow, he said, that the Fed needs to act - but very carefully.

"An excessively rapid or disorderly tightening of monetary policy could have more negative effects than desired," Daco said. "In the end, what the Fed wants to do is essentially proceed to the so-called 'soft landing' of monetary policy, where it brings inflation back in line with its mandate; it needs to allow the labor market to grow, and the economy to move toward maximum employment - and [do] so without creating recession."

Some Fed officials have echoed this sentiment recently, saying that a major initial rate increase isn't warranted. And however interest rate increases proceed, Fed officials will have to weigh making a move that tightens the money supply across the board and decreases demand, without tightening so far and so fast that, for example, businesses decide they can't afford to hire or keep workers on, leading to a recession.

That doesn't completely negate concern about what Stiglitz calls the "supply-side" problems contributing to inflation - both in terms of fixing the supply chain and in terms of addressing corporate consolidation.

For example, Robert Reich, a former US Labor secretary, warned in a Guardian opinion piece on Sunday that, absent addressing anticompetitive behavior and other supply-side issues, "responsibility for controlling inflation falls entirely to the Federal Reserve, which has only one weapon at its disposal - higher interest rates," Reich wrote. "Higher interest rates will slow the economy and likely cause millions of lower-wage workers to lose their jobs and forfeit long-overdue wage increases."

Such fixes, however, would likely be a long-term project, while the Fed has the power to act now. And absent some action, corporations will likelycontinue to hike prices, because they have the ability and the desire to do so. As New York University economist Thomas Philippon told the New York Times last month, that's because the current, unprecedented moment is just a manifestation of an underlying reality: "The firms were always greedy," he said.

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Corporate pricing is boosting inflation - but we're still buying

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On recent earnings calls, massive corporations have posted huge profits and promised continued price increases, evenas inflation continues to rise to rates not seen in decades. For example, Starbucks celebrated a 31 percent increase in profits at the end of 2021 - but it still plans to hike prices this year, the New York Times reported earlier this month.

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Understanding market power is also essential for spotting business prospects. Businesses with greater market dominance confront a less sharp trade-off between higher prices and higher quantity—they can get away with both—and hence make larger profits. As a result, as a wise business owner, you should strive to enter a market with few competitors. As a savvy manager, you may boost your market power by presenting your product in a way that distinguishes it from your competitors. And as an investor, you want to uncover companies with long-term market dominance. We'll look into these difficulties in more detail in the next chapters. The actuality of market power also relates to some of the most important questions in economics, challenging our understanding of market efficacy.

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This video goes very deep into how market power works so if you are struggling to understand the topic this is a must

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This is an article discussing how Facebook is abusing it's algorithms that track it's users to have absolute market dominance.

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Reuters

London: Social media giant Facebook, now known as Meta Platforms, faces a £2.3 billion plus ($3.2 billion plus) class action in Britain over allegations it abused its market dominance by exploiting the personal data of 44 million users.

Liza Lovdahl Gormsen, a senior adviser to Britain's Financial Conduct Authority (FCA) watchdog and a competition law academic, said she was bringing the case on behalf of people in Britain who had used Facebook between 2015 and 2019.

The lawsuit, which will be heard by London's Competition Appeal Tribunal, alleges Facebook made billions of pounds by imposing unfair terms and conditions that demanded consumers surrender valuable personal data to access the network.

Quinn Emanuel Urquhart & Sullivan, the law firm representing Lovdahl Gormsen, has notified Facebook of the claim.

Facebook said people used its services because it delivered value for them and "they have meaningful control of what information they share on Meta's platforms and who with."

The case comes days after Facebook lost an attempt to strike out an antitrust lawsuit by the Federal Trade Commission (FTC), one of the biggest challenges by the US government against a tech company in decades as Washington attempts to tackle Big Tech's extensive market power.

"In the 17 years since it was created, Facebook became the sole social network in the UK where you could be sure to connect with friends and family in one place," Lovdahl Gornsen said.

"Yet, there was a dark side to Facebook; it abused its market dominance to impose unfair terms and conditions on ordinary Britons, giving it the power to exploit their personal data."

Lovdahl Gormsen alleges Facebook collected data within its platform and through mechanisms like the Facebook Pixel, allowing it to build an "all-seeing picture" of Internet usage and generate valuable, deep data profiles of users.

Opt-out class actions, like Lovdahl Gormsen's, bind a defined group automatically into a lawsuit unless individuals opt out.

Stay on top of technology and startup news that matters. Subscribe to our daily newsletter for the latest and must-read tech news, delivered straight to your inbox.

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Facebook faces $3.2 billion UK class action over market dominance

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London: Social media giant Facebook, now known as Meta Platforms, faces a £2.3 billion plus ($3.2 billion plus) class action in Britain over allegations it abused its market dominance by exploiting the personal data of 44 million users.