Manipulating market definitions is the only way to portray Microsoft as a threat

At the forefront of nobody largest cases Since the 1990s, Microsoft once again found itself facing a major antitrust complaint from the Federal Trade Commission (FTC). Rather than focusing on software or the PC — areas in which Microsoft is a formidable competitor — the FTC’s current efforts are targeting Microsoft’s role in the gaming industry. The complaint relies on an untenably narrow market definition to claim that a Microsoft acquisition would fundamentally change competition.

The Federal Trade Commission issued a complaint against the proposal approx $70 billion Microsoft’s acquisition of Activision, the gaming company. The complaint alleges that the acquisition is in violation Section 7 of Clayton’s Law which prohibits mergers or acquisitions where “the effect may be material to reduce competition, or tend to create a monopoly”.

An essential part of measuring competition is properly identifying the relevant market. The FTC definition is restricted in that it only includes high-performance game consoles, multi-game content library subscription services and cloud game subscription services, all of which are limited to the United States.

According to the FTC, high-performance game consoles only include PlayStation and Xbox. Limiting the market to two related consoles ignores the fact that many games are offered Multiple controllers, including computers. Moreover, many players already own it more than one controllerWhich adds a level of competition and choice.

More problematic than the narrow definition of consoles is how the FTC defines AAA games. Class AAA games have no universal definition, but in complaining, reported the Federal Trade Commission It involves production budgets in the millions, development teams with thousands of workers and development lengths of several years. The agency also claimed that the category includes only about four game developers: Activision, Electronic Arts, Take-Two and Ubisoft, and possibly a fifth with the addition of Epic.

Given the time and money that is being poured into AAA games, the FTC believes that these games drive innovation and improve the overall gaming experience. This idea is also largely accepted by gaming industry. However, to make the point that the acquisition of Activision will increase focus, the agency severely limits the market.

Usually, antitrust market concentration is measured by Herfendal Hirschmann Index (HHI). This indicator is calculated by squaring the market share of the relevant companies. The highest possible score is 10,000, but anything over 2,500 is considered moderately concentrated. Mergers or acquisitions that increase the score by 200 points or more are traditionally considered to increase market power.

Although not limited to the US — as in the FTC’s complaint — the 2021 revenue data from macrotrendsAnd companies’ market value, nation And zoom It can provide a general estimate of AAA game market concentration.

Focusing on the five companies listed, it provided an HHI score of approximately 2,344, which is below the threshold for moderate concentration. The FTC’s primary complaint is that Microsoft could make Activision’s games exclusive to their own platforms, thus removing them from the competitive realm. Microsoft has stated that it does not intend to offer Activision Content only through their products. However, if Microsoft did, removing Activision would increase that narrowly defined market concentration to approximately 2,753.

This worst-case scenario in the AAA game market is showing some moderate increases in focus. However, classification is problematic at best. While the FTC claims that these five companies make up the entirety of the relevant market, that is not the truth. industry Publications include companies These aren’t on the list like Rockstar Games, which make Grand Theft Auto and Final Fantasy, respectively, as well as many other players on the market.

If the FTC expands the relevant market to 10 AAA game studios, HHI and Microsoft’s market share will decline further. Specifically, adding Sony, Square Enix, Riot Games, Rockstar Games, and Capcom — the major game companies for which public revenue data is available — would lower the HHI to about 1,659. Additionally, if Microsoft removed Activision content entirely, it would increase The score is only about 76 points.

By relying on unjustifiably narrow market definitions of two consoles and just five game companies, the FTC is trying to show that Microsoft’s acquisition of Activision will reduce competition. However, the goal should not be to skew the measurement to manufacture a particular result.

What the FTC should do is empirically demonstrate that consumers will be harmed by the merger, rather than data manipulation.

Theresa Doreen and Steve Pucisak work with the American Consumer Institute, a nonprofit educational and research organization. You can follow them on Twitter @ConsumerPal.