Wednesday, December 7, 2022

American Economic Liberties Project means well but fails to understand mobile app markets and games industry: FTC review of Microsoft-ActivisionBlizzard

A couple of hours ago, a non-profit named American Economic Liberties Project (Wikipedia) issued a press release urging the Federal Trade Commission (FTC) to block Microsoft's acquisition of Activision Blizzard. The statement refers to reports according to which Microsoft president Brad Smith will meet with FTC chair Lina Khan and commissioners Rebecca Kelly Slaughter and Alvaro Bedoya today. So this is a quick follow-up to my previous post, Nintendo's 10-year Call of Duty deal and NLRB charges against Apple pave the way for FTC approval of the acquisition of Activision Blizzard ahead of Microsoft president's meeting series with commissioners (reportedly today).

The press release makes valid points about the Apple-Google mobile platform duopoly, but shows fundamental--in fact, shocking--misconceptions in two other respects. I regret to say that an organization that doesn't understand the relevant markets should do its homework before speaking out.

The passage that no one can reasonably disagree with is this:

"Microsoft’s claim that Apple and Google have monopoly control over the mobile ecosystem is reasonable," [Sarah] Miller [Executive Director of the American Economic Liberties Project] added. "This control prevents video game firms, and not just Microsoft, from competing fairly on important platforms."

I also support Mrs. Miller's call "to break Google and Apple’s control over the mobile ecosystem, as Congress and a number of state legislators are currently considering," and that she "encourage[s] the Department of Justice Antitrust Division to bring an antitrust case against Apple over its app store market power."

But the press release is off base in the following respects:

  • The organization says that Microsoft's acquisition of Activision Blizzard King "will undermine the vitality of an important sector of the American economy and consolidate the video game industry into a small group of firms who control walled gardens of content, data, and advertising."

    That is ridiculous because the video game industry is fragmented--and will be post-merger. The numbers such as the Herfindahl-Hirschman index, which is computated based on the distribution of market shares in a given industry, just don't support the American Economic Liberties Project's claim.

  • The press release also says that "[t]he right response to one set of monopolies – Apple and Google – is not to further entrench another monopoly – Microsoft – to fight them." First, it's nonsensical to warn against "entrench[ing] another monopoly." What market? If there is any market in which Microsoft has huge market power, it's certainly none of the markets in which Activision Blizzard King is active. Second--and this is way more important--it is at best na├»ve to suggest that legislation and antitrust litigation could simply open up the mobile gaming market to the extent that "the little guy can compete on the merits, and not one based on getting permission from a monopolist to get access to a market." I am such a little guy and brought my complaints over Apple's and Google's app store tyranny. But I'm also realistic enough to understand that even if the most far-reaching legislation was passed (and right now it's even doubtful whether Congress will enact the Open App Markets Act before the end of the current term) and courts ordered drastic remedies, Apple and Google would still have the power of default and billions of users who at this point are used to downloading all of their apps from Apple (no exception) and from Google (exceptions exist on Android, but are not commercially meaningful).

    The world out there doesn't work the way that a non-profit advocating strong antitrust enforcement may believe it does. Little guys like me need competition between major players so we can then compete on the merits. After a decade and a half of walled gardens, we can't "re-educate" consumers to download apps from another place. But if a game like Candy Crush is exclusively available on Microsoft's envisioned mobile app store, users will give it a try and get used to it. I have no idea whether it would ultimately be Microsoft's universal app store where I would publish my own apps. It could even be that Apple and Google become a lot more developer-friendly once they face competitive constraints. It could also be that someone else's store, such as an Epic Games Store or an Amazon Store, will be my preferred distribution platform depending on a number of factors that I'd have to consider at that stage.

    No one is saying that Microsoft could solve the problem without measures such as the Open App Markets Act (or the Digital Markets Act in the EU). But even if third-party app stores are allowed to compete on a level playing field in theory, the practical reality is still going to be that people go to Apple's App Store on iOS and the Google Play Store on Android. It's what they've been doing for about 15 years. Only a "clash of titans" will bring about change.

    The American Economic Liberties Project is always just going to issue statements, and that's OK because it's also needed. But its statements won't give consumers a compelling reason to look for interesting apps on a new app store.

If the American Economic Liberties Project really wants a competitive app distribution market, it has to realize that competition between the behemoths has the potential to benefit the midgets, and that no lawmaker, no regulator, and no court of law is going to shut down Apple's App Store and the Google Play Store. Someone will have to successfully challenge the incumbents, and that someone is not going to be a small developer.