In the year since Joe Biden became US president, his competition enforcers have talked a lot about getting tough on Big Tech and oligopolies but they have taken relatively few concrete actions.
Fans of Lina Khan, the Federal Trade Commission chair, defend her apparent inactivity by saying she has been taking time to study the agency. Critics ask why the FTC and the Department of Justice, which share responsibility for antitrust enforcement, are sitting on their hands at a time when mergers and acquisitions are smashing records, topping $5tn globally last year and $2.6tn in the US alone.
Microsoft has now served up a juicy challenge with the largest acquisition in its history — a $75bn deal for video game maker Activision Blizzard. The announcement came hours before a pre-planned FTC and DoJ news conference last week where the watchdogs promised to rewrite merger rules to crack down on abusive combinations.
This deal merits close scrutiny by US regulators: Microsoft, Nintendo and Sony dominate the market for gaming consoles, and investors were so concerned about the impact of the tie-up that they sent Sony shares down 13 per cent.
Still, the watchdogs should not prejudge the answer. This is a vertical merger involving a platform and a distributor, an area where the law is particularly complex. The Trump administration’s 2019 effort to block AT&T’s purchase of Time Warner flopped completely, and Khan’s FTC last year withdrew its vertical merger guidelines.
The analysis of whether to block the deal must also consider that consoles are not the only way to play games. There are other distribution systems, including streaming, smartphones and PCs, and lots of content producers. In that broader context, the Microsoft-Activision combination looks far less powerful. Regulators have a tough task as they consider this rapidly evolving market and try to predict the competitive forces that will shape it.
Watchdogs failed to realise the potential impact of Facebook’s purchases of Instagram in 2012 and WhatsApp in 2014 and waved them through. They now regret those decisions so much that the FTC is suing to undo them. They should not allow that mistake to be repeated. Retrospective enforcement years later would be the worst outcome because it cannot fully undo the harm to competition and U-turns sow confusion in the marketplace. The contrast between the US approach to mergers up to now and the stricter line pursued by the EU and UK has only added to the uncertainty.
Biden has promised to reshape US policy and take a broader view of consumer harm that looks beyond higher prices. Congress is also moving this way: the Senate Judiciary committee last week voted to advance a bipartisan bill designed to stop platform companies from giving preferential treatment to their own products and services.
The US government is already on a collision course with the biggest companies in Silicon Valley. Google and Facebook owner Meta are already fighting federal antitrust lawsuits, and Apple chief executive Tim Cook personally lobbied against the Senate bill.
The Microsoft-Activision tie-up is the right moment for the FTC and DoJ to spell out what they think tough merger scrutiny really means. If they opt to let the deal go through, the government should clearly explain why and what kinds of acquisitions would not pass muster. They must also ensure any conditions are properly enforceable. If the watchdogs conclude that the tie-up would be anti-competitive, they should press ahead without fear. As Khan said last week, “You lose all the shots you don’t take.”