It’s a sign of the times that on the very same morning, the FTC and Justice Department announced a thorough review of corporate merger policies with an eye to preventing anti-competitive acquisitions — and a megacorp announced a $69 billion deal that would further consolidate an industry already dominated by a handful of players.
That’s not to say that the Microsoft-Activision deal is necessarily anticompetitive, but they certainly will have their job cut out for them in proving that it isn’t. As a publisher, platform, hardware maker and service provider in gaming, Microsoft’s acquisition of Activision Blizzard puts several of the world’s most popular gaming franchises firmly in its stable — and potentially out of arch-rival Sony’s.
Maybe that’s just how competition works these days. But what this FTC review presupposes is… maybe it shouldn’t?
What exactly the new rules are to be isn’t yet set, the announcement drew very obvious dotted lines around the areas the agencies are hoping to rein in without actually naming names. In fact (as is frequently but not always the process in recasting rules) public comment is called for on all matters, so the areas of focus are ostensibly notional, though one assumes they have a draft ready now. (In fact I suspect FTC Chair Lina Khan had it in her briefcase when she was confirmed.)
The review would seek to revisit the conditions under which a merger or acquisition would be viewed with suspicion, such as whether it will “tend to create a monopoly,” a somewhat loose turn of phrase technically in the guidelines now but not very well defined.
Also under consideration would be the way markets themselves are defined, which is key to establishing anticompetitive practices. For instance, what market is Facebook in, legally speaking? Communications, “social media” (however we define that), advertising, or what? Unless that sort of thing is pinned down, companies can slip between the cracks, arguing one day that they’re an advertiser and the next that they’re a communications provider, usually whichever suits their needs for escaping regulation. (Broadband providers have been drawing out a similar advantageous vacillation for decades.)
The FTC will also be looking at updating guidelines on “potential and nascent competitors,” the kind frequently snapped up for tens of billions of dollars when it looks like they can’t be contained any longer.
Monopsony power and how it relates to labor markets is also being looked at, which is where one company (or more than one in collusion) dominates the market for buying a particular service. Say if Uber for some reason employs 90% of all personal transportation drivers in a state, what opportunities for leverage and abuse does that offer, and how can those be counteracted?
The most explicit call-out, however, is certainly the final bullet on the list of items:
Unique characteristics of digital markets: The agencies seek information on how to account for key areas of the modern economy like digital markets in the guidelines, which often have characteristics like zero-price products, multi-sided markets, and data aggregation that the current guidelines do not address in detail.
What exactly is the effect of things like Amazon Prime, which despite being unquestionably convenient in many ways is part of a complex market and system of markets, and as such may prove problematic from a competition standpoint? Without the ability to even ask and answer such questions, Amazon will fall through the aforementioned cracks and its policies may be blindly accepted as beneficial upon superficial inquiry.
Asking the general public whether they think a company amounts to a monopsony, or whether their acquisition of a competitor amounts is questionable, seems on the face of it a little unaccountable. But the public comment period does two things.
First, it creates an opportunity for soliciting broad support from the public across the U.S., establishing the process as good politics. Some canny Representative may require a bit of convincing that their constituency cares about such things. Though as we saw with the net neutrality push, this is hardly sufficient to guarantee success.
Second, it allows for real input from interested parties — trade associations, activists, NGOs, and so on — who can put together serious comments that make substantive policy and research suggestions. Having a basket of non-partisan think tanks to sprinkle in as footnotes justifying various approaches is a bulwark against rules being considered “arbitrary or capricious” and being nullified or challenged.
A highly readable statement by Khan summarizes the situation well and gives important context to the idea of updating rules — it’s something we’ve been doing all along, and it’s long past time we do it again. It’s hard to put it better than she does, with the directness that made her Amazon’s Antitrust Paradox paper so compelling:
Major technological and economic changes, meanwhile, have led to shifts in how businesses compete and grow, creating new interconnections and dynamics across multiple dimensions.
Evidence suggests that decades of mergers have been a key driver of consolidation across industries, with this latest merger wave threatening to concentrate our markets further yet.
While the current merger boom has delivered massive fees for investment banks, evidence suggests that many Americans historically have lost out, with diminished opportunity, higher prices, lower wages, and lagging innovation. 7 A lack of competition also appears to have left segments of our economy more brittle, as consolidated supply and reduced investment in capacity can render us less resilient in the face of shocks.
Just as we must revise our theories and models to fit new facts and evidence, we must ensure our merger guidelines accurately reflect the realities of the modern economy. Matching our analysis to contemporary business strategy requires that our tools be dynamic and holistic rather than static and atomistic.
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