14 July 2023

How an American court struck a blow for British gamers

By Ben Dennehy

Those who fear the UK is turning into an over-regulated, uncompetitive economy have been thrown a lifeline from an unlikely quarter – a federal court in California.

A ruling this week effectively means Microsoft has won its fight against the Federal Trade Commission (FTC) over its acquisition of Activision-Blizzard. By denying a motion to block the deal on competition grounds, the court has given free-market enthusiasts renewed confidence to make the Consumer Welfare Standard (CWS) the primary benchmark for anti-competitive behaviour.

Why does this matter for the UK then?

As CapX readers may remember, in April this year Britain’s Competition and Markets Authority (CMA) blocked the merger, arguing that it would make online gaming less competitive and innovative. That decision made the UK an outlier in the global economy, with both the US and EU now both firmly resolved that the merger would not be anti-competitive.

The Californian court’s decision seemed to have shaken things up, however. The CMA has now started walking back some of its previous comments on the deal and appears willing to look at it afresh. British competition lawyers have described this apparent volte face as ‘an unprecedented and dramatic turn of events’ – one that will hopefully see a nuanced change to how the merger is allowed to proceed in the UK market.

It’s worth digging into why the CMA originally blocked the deal. It based its decision on concerns regarding cloud gaming competition, while also concluding that its console competition gaming concerns would be remedied by a structural remedy. Unfortunately, it’s quite clear that the regulator entirely missed the point here. The gaming industry has been massively disrupted by technological advancements in recent years, and while console gaming enjoys consistently high numbers, in recent years more gamers have enjoyed using mobile devices (including handheld consoles) and VR options as well. Underpinning all these additions is the widespread adoption of cloud gaming, allowing customers to purchase and download gaming titles without ever having to leave their house.

This sort of addition almost entirely changes the nature of the gaming industry, allowing companies to gain access to the market in entirely new ways, boosting the industries capture of new gamers and producing new options for consumers. The CMA originally rested on a narrow definition of gaming, allowing itself to be persuaded that substantive competitors of console gaming would be affected. By adopting a broad definition of the gaming industry and using the CWS as an objective measure of competition, it is easy to see two things: first, that consumers will benefit from this deal; second, that it will require Microsoft’s competition to innovate themselves to stay relevant, which in turn will benefit consumers the world over.

More broadly, the US court’s recent decision clearly underlines the ideological component of anti-merger efforts from regulators across the Western world. It suggests that if regulators keep pursuing actions that directly harm consumers, not only will court’s hopefully keep striking them down, but they will continue to harm the economy. After all, the threat of regulatory intervention puts services we all rely on into a state of constant existential crisis, which in turn reduces their chance of attracting investment. In the US, Amazon Prime is just the latest example of a service beloved by many consumers, but under threat from the FTC.

The market has this amazing tendency to self-regulate and the CMA, along with other regulators, would do well to allow market players to innovate their industries. They should start by making consumer welfare, not ideological abstractions, the primary test of whether a merger should proceed or not.

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Ben Dennehy is the Communications Manager at the American Consumer Institute, a nonprofit education and research organisation.

Columns are the author's own opinion and do not necessarily reflect the views of CapX.