The FTC Doesn’t Understand Its Role in Antitrust (Premium)

I’ve already made the case for why the U.S Federal Trade Commission (FTC) is wrong about Microsoft’s Activision Blizzard acquisition, as has Microsoft, but now the agency has made the case by itself. Worse, it has proven that it doesn’t even understand the role it plays in enforcing this nation’s antitrust laws.

As I’m sure you know, the FTC and Microsoft will square off in court over several days of hearings that start tomorrow, June 22. And perhaps not surprisingly, the two sides have filed various legal briefs supporting their arguments.

The FTC’s filing is pointlessly inflammatory, noting that Microsoft’s previous acquisition of ZeniMax is “powerful evidence” that it should not be allowed to similarly acquire Activision Blizzard because Microsoft made some ZeniMax titles, like Redfall and Starfield, exclusive to its own platforms. This, the argument goes is, if not proof of Microsoft’s intentions with Activision Blizzard, is at the very least concerning. And “concerning” is all the FTC cares about, as it states that it only needs to “present sufficient to raise serious, substantial, difficult questions regarding the anticompetitive effects of Microsoft’s acquisition of Activision.”

That’s cute, but that’s not really the bar, now, is it? The FTC’s role is more broadly about enforcing this country’s antitrust laws. But Margrethe Vestager, the EU’s Competition Commissioner, does understand the role that regulatory agencies play when it comes to enforcing antitrust laws. And after her agency, the European Commission (EC), approved Microsoft’s acquisition of Activision Blizzard, she provided an excellent commentary on why her approach differed from that of the UK Competition and Markets Authority (CMA), which aligned with the FTC and blocked the acquisition (for equally nonsensical reasons). This is a master class in competence.

“Some people think that agencies should either block or clear mergers,” she said in a recent speech. Nothing in between. So if you block you are a ‘tough’ enforcer. If you clear, well, let’s just say you are not perceived as tough. That is not our policy. The European Courts have held that we cannot, as a matter of principle, dismiss remedy proposals. We have to investigate the merits of every solution offered. Of course we prefer structural remedies. And in fact, looking at the past 5 years, 80 percent of our conditional clearances relied on structural remedies.”

“But … in certain situations, we can accept solutions other than divestitures. Generally speaking, those solutions consist in granting access to a technology or an asset,” she continues. “The criteria for doing so are stringent … framing enforcement in a binary decision (to clear or to block) is limitative. There will be cases where competition issues cannot really be solved by a divestment, and the market will not necessarily be better off if we block the merger.”

More specifically in this case, she says, “We believe the Microsoft/Activision merger – with appropriate remedies … in fact represents a positive development. The deal deserved a thorough investigation. We looked at impacts on gamers today and in the future – whether they play on PC, console, or on their phones. We focused on the development of cloud streaming, which will play an increasing role in how consumers access games. An important finding was that the overall market share for Microsoft and Activision was generally low in Europe. It’s only when you look at specific segments like ‘shooter games’ that you get to above 20 percent. And for consoles, Sony sells about 4 times more PlayStations than Microsoft sells Xboxs.

“With this context, we did not think the merger raised a vertical issue [and] we found that Microsoft would probably not shoot itself in the foot by stopping sales of Call of Duty games to the much larger PlayStation player base. Where we did have concerns was in cloud gaming … We were worried that Microsoft would make Activision games exclusive to its own cloud gaming service. This would have restrained access to games and strengthened Window’s position as an operating system … We accepted a 10-year free license to consumers to allow them to stream all Activision games for which they have a license via any cloud service. And why did we do this instead of blocking the merger? Well, to us, this solution fully addressed our concerns. And on top of that, it had significant procompetitive effects.” (Activision does not allow its games on cloud streaming services now, but it will under Microsoft.)

See, the thing is, anyone can raise “concerns.” Even someone who backs Microsoft’s acquisition of Activision Blizzard might have concerns. The issue is addressing those concerns. And as Vestager notes, it’s often in the best interests of fair competition—whether you are protecting consumers or other businesses—to seek behavioral change rather than to simply say no. That is, is there some fair compromise to be made that makes this acquisition make sense for all parties involved?

In this case, obviously, there is.

Indeed, Microsoft has already made it: Microsoft has offered 10-year deals on key games like Call of Duty and on bringing its cloud streaming titles to any competitive services that want it. Sony, which has a stake in both, has ignored Microsoft’s pleas. Because they are assholes.

The FTC can’t just be assholes. And the FTC can’t just block the merger because it was blindly told by the Biden administration to be tough on Big Tech. No, the FTC must enforce this nation’s antitrust laws. And as the EU has already demonstrated, the concessions Microsoft has already agreed to will do just that. All denying Microsoft this merger will do is significantly harm a US corporation that is struggling against its Japanese competitors in the console market. There is no logical or legal justification for doing this.

The way you address the FTC “concerns” is to make sure that doesn’t happen with Activision Blizzard. And that bar has already been met. The FTC’s case is without merit, and it should be defeated.

There is no nuance here. It’s literally that simple.