FTC Continues War on Bigness by Opposing Microsoft Video-Game Acquisition

The economic rationale for blocking Microsoft's acquisition of Activision Blizzard doesn't add up.

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The FTC is doubling down on its opposition to Microsoft’s acquisition of video-game company Activision Blizzard by filing to block the merger in a federal district court.

It’s been more than a year since Microsoft announced its $69 billion plan to purchase the maker of popular video games such as Call of DutyWorld of Warcraft, and Candy Crush. Now the FTC is asking for a temporary restraining order and injunction to stop the deal from closing before the case is adjudicated in the agency’s in-house administrative court.

Microsoft would like to gain a foothold in mobile video games by purchasing Activision and its popular titles. The video-game industry now surpasses the movie and music industries’ earnings combined. Mobile gaming is the largest and fastest-growing segment of the broader video-game market, with $92 billion of revenue in 2022.

But the FTC frets that the world’s fourth-largest tech company won’t allow competitors, such as Sony or Nintendo, to offer Activision’s popular games. In a press release at the beginning of its opposition to the deal, the FTC wrote that the acquisition “would enable Microsoft to suppress competitors to its Xbox gaming consoles and its rapidly growing subscription content and cloud-gaming business.”

Never mind that Microsoft has already offered to remedy those FTC concerns by pledging to offer Call of Duty on Sony devices for ten years, possibly much longer than the game will remain a top pick among users. Sony called the offer “inadequate” and continues to lobby regulators in the U.S. and around the world to block the sale. An Activision executive claims that CEO of Sony Interactive Entertainment Jim Ryan said, “I don’t want a new Call of Duty deal. I just want to block your merger.” If true, it’s regulatory capture at its finest.

Beyond its offer of continued availability, Microsoft points to the incentive to keep offering Call of Duty to Sony because two-thirds of the game’s players are on Sony’s PlayStation. Microsoft would be foolish to lose the revenue from those players’ in-game purchases, a large source of revenue. It has every financial incentive to offer Activision’s games to users of competitors’ consoles. No market failure should equal no regulatory antitrust intervention.

The FTC doesn’t do any better viewed from the global stage. Microsoft’s Xbox currently sits in third place behind PlayStation at No. 1 and Nintendo at No. 2 for gaming-console market share. Why is a U.S. regulator trying to hamstring the only American company in the top three?

The economics of the FTC’s case don’t add up either. Microsoft isn’t trying to purchase a competitor or proceed with what’s known as a horizontal merger. A horizontal merger is when the acquired company is a direct competitor of the purchasing company. Those deals typically come under more U.S. antitrust scrutiny because of potential price increases with one less firm in the market.

Consumer welfare is (or is meant to be) a guiding principle running through American antitrust law. The Activision deal would be a vertical merger, as their products would be folded into Microsoft’s video-game supply chain. Those types of deals have long been recognized by U.S. antitrust authorities as producing efficiencies that benefit consumers. Even the regulatory zealots of the European Union have cleared the deal to go forward.

Why does the FTC continue to pursue this case? One reason is probably that FTC leadership is hellbent on expanding the scope and activity of competition law in the U.S., no matter how many failures in court that brings. This is an ideological war on “bigness” and the consumer-welfare standard, with roots stretching back to the progressive dogma of the early 20th century.

And it should also be noted that earlier (and inferior) iterations of antitrust law had a curious tendency to cause some of the very same problems it was aiming to solve. Breaking up big companies often raised prices for consumers instead of lowering them, as did protecting competitors instead of competitive forces. In the current FTC’s zeal to return to the populist interpretations of competition law that prevailed for much of the 20th century, it is repeating the same mistakes. In blocking Microsoft’s acquisition of Activision, the FTC may be thwarting the rise of a useful rival to Apple and Google’s dominance of mobile gaming.

Read the full article at National Review.