The watchdog said Facebook's terms of service regarding its use of user data may abuse its possibly dominant position in the social network market.
"For advertising-financed internet services such as Facebook, user data are hugely important. For this reason it is essential to also examine under the aspect of abuse of market power whether the consumers are sufficiently informed about the type and extent of data collected," Federal Cartel Office President Andreas Mundt said in a statement.
Facebook, the world's biggest social network with 1.6 billion monthly users, makes its money from targeted advertising, thanks to the data it gathers about its users' friends, opinions and activities from their postings.
It has faced strong criticism from politicians and regulators in Germany, where data protection is strongly regulated, over its privacy practices.
Co-founder and Chief Executive Mark Zuckerberg visited Berlin on a charm offensive last week.
A Facebook spokeswoman said on Wednesday: "We are confident that we comply with the law and we look forward to working with the Federal Cartel Office to answer their questions."
© Thomson Reuters 2016
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