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Microsoft has proposed a deal to purchase Activision Blizzard for $68.7 billion dollars. The deal intends to grow Microsoft’s gaming industry beyond its current platforms to include mobile devices, consoles, and PCs. While Microsoft stands to benefit from projected platform growth in anticipation of becoming the “third-largest gaming company by revenue, behind Tencent and Sony,” there are a few issues that this deal may lead to. The question now is whether the acquisition will limit the competition in the gaming industry or if it will create an unfair monopoly.
The competition within the gaming industry is significant due to its direct effect on the growth of the businesses involved. Without competition, it would be impossible to create new and innovative ideas which would cause the industry to stagnate and eventually crumble from a lack of new content that would bring in new customers and engage existing customers.
The issue of monopoly in the gaming market is directly correlated to the market's competition. For monopoly to occur, a company must hold exclusive rights to games or companies that hold extreme amounts of control in the market. For example, two games involved in this deal, Call of Duty and World of Warcraft, collectively have over 300 million players worldwide. Statements from Satya Nadella, Chairman and CEO of Microsoft, claim “[They’re] investing deeply in world-class content, community and the cloud to usher in a new era of gaming that puts players and creators first and makes gaming safe, inclusive and accessible to all”(emphasis added). However, Microsoft must show that their acquisition of Activision Blizzard will not lead them to make these games, among others, specifically exclusive to their consoles and devices. What Antitrust Issues Are Regulators Concerned With?
When considering whether this acquisition will limit competition or create a monopoly, we must look at antitrust laws regarding such issues. Antitrust laws regulate the conduct and organization of businesses to ensure the promotion of competition and the prevention of monopolies. In this case, the specific antitrust issue that we will be focusing on is the formation of unlawful monopolies, which makes it a crime when a company or business controls the market for a product or service by suppressing competition. For example, an unlawful monopoly under 15 U.S.C. Section 2 is formed by the possession of monopoly power in the market and the wilful acquisition of that power rather than from growth or development by a superior product. Gaines v. Nat'l Collegiate Athletic Ass'n, 746 F. Supp. 738 (M.D. Tenn. 1990). Brazil Approves The Deal
Brazil was one of the first countries to approve Microsoft’s acquisition of Activision Blizzard. Brazil’s CADE, Administrative Council for Economic Defense, recently published a document in which it lists multiple reasons for their overall decision to approve the deal. However, their most important claim is that “even if the Activision Blizzard game catalog was to become exclusive to the Microsoft ecosystem after the transaction, SG/CADE considers that such exclusivity would not result in a substantial reduction in the levels of competition in the downstream markets.” Considering the iconic franchises that would be included in this deal such as World of Warcraft, Diablo, Overwatch, and Call of Duty, Brazil's belief that this transaction would not reduce the competition within the gaming industry is a very important step determining whether or not this deal will be approved. How The European Union Is Analyzing The Situation
The European Union is currently deciding if Microsoft would be incentivized to block rivals' access to Activision Blizzard's best-selling games. Within this decision, the EU is also considering whether or not the software and data gained by the acquisition of Activision Blizzard would create a competitive advantage in the development, publishing, and distribution of computer and console games. If it is determined through this investigation that Microsoft could gain a monopoly in the gaming industry through this acquisition, it is likely that the deal will not be approved.
How Game Pass Can Potentially Cause Problems
Another interesting issue that Forbes brought up focuses more on the access of the games involved in the deal. Specifically, the Call of Duty franchise and the Xbox game pass. Although Microsoft has promised that they are committed to making Call of Duty available on PlayStation the same day it is available on Xbox, the game pass can potentially create a monopoly. If a company or other business entity can control the market and at its discretion raise the price of a product above its actual value, then it is a monopoly. Minnesota Wheat Grower’s Co-op Marketing Ass’n v. Huggins, 162 Minn. 471, 475 (1925).
What Microsoft did not say is that by owning Activision Blizzard they will be able to put Call of Duty on the Xbox game pass, meaning that they can offer it to Xbox owners for free as long as a subscription-based membership fee is paid, while PlayStation owners would be charged the full listing price Microsoft Is Making A Poor Case For Its Activision Blizzard Acquisition. Tassi, Paul. Forbes. This would allow for a competitive advantage for Microsoft over PlayStation due to its offering of an exclusive deal to only those who own the Xbox console. A Potential Tying Arrangement Issue
Another potential issue to look out for is a potential tying arrangement. “A tying arrangement is an agreement by a party to sell one product but only one condition that the buyer also purchase a different (or tied) product, or at least agrees that he will not purchase that product from any other supplier.” Wilson v. Mobil Oil Corp., 984 F.Supp. 450, 457 (1997). It could be that Microsoft taking Call of Duty either exclusive or placed on Game Pass could create a tying arrangement whereby consumers who wish to play Call of Duty would have to either (a) purchase a device that runs Microsoft software to play the game or (b) purchase a Microsoft device to receive Call of Duty at a lesser price than on competing devices.
To prevail on an illegal-tying arrangement, a plaintiff will have to prove (1) that there are two distinct products in different markets that are tied together; (2) the seller has “appreciable” economic power to force acceptance of a tied product; and (3) the tying arrangement affects a substantial volume of commerce. Paladin Assocs. V. Montana Power Co., 328 F.3d 1145, 1159 (9th Cir. 2003). Emphasis added. If this does come to possible litigation, a plaintiff would have to prove that not only does this arrangement exist, but that it is an antitrust violation. Here, the two products would be Microsoft devices and Sony devices. Determining whether Microsoft has appreciable economic power is a new can of worms. There are many different interpretations of what constitutes the gaming industry, but that is beyond the scope of this article. A plaintiff would also have to prove that Microsoft’s arrangement affects commerce substantially that it is worth the time to litigate. While not impossible, this deal is still in its infancy and there is still much to be seen.
It is clear that the approval of Microsoft’s acquisition of Activision Blizzard is still in the initial stages of the investigation, but as it stands there have been no serious claims that would directly deny this acquisition. Therefore, without further proof of a decrease in competition or the formation of a monopoly, it is likely that this deal will eventually be approved. This deal, upon approval, will become a landmark in Microsoft’s potential future growth within the gaming industry.