Free Enterprise

The FTC’s War on Gaming

By Caden Rosenbaum and Sebastian Anastasi

Even before she took the job as the FTC’s new Chair, Lina Khan had her sights set on big tech. But few expected the Chair to block tech companies from buying into gaming. 

This summer, the Federal Trade Commission sued Meta to block a deal to purchase virtual reality (VR) fitness app-maker “Within.” Months later, when the suit finally made its way into a courtroom, the Commission sued Microsoft to block its acquisition of video game developer Activision Blizzard, Inc. This month, the Commission reached a settlement agreement with Epic Games over alleged privacy violations and use of dark patterns — an emerging class of ambiguous harm.

These suits are only a sign of what’s to come as FTC Chair Lina Khan has clearly signaled the Commission’s intent to disrupt nascent industries by blocking mergers and acquisitions. But the FTC should be wary of compromising the incentive for such investments. Preventing companies from pouring capital into emerging markets will put a damper on growth and cripple the US economy.

The FTC’s ambitious expansion of antitrust enforcement into burgeoning markets, like virtual reality, ironically threatens innovation itself. As others have noted, suits like these discourage investment by creating fear the government will take aggressive action to undermine developing industries. The threat posed by these suits alone limits the capability of large firms to expand into nascent industries and build out consumer markets. 

Before this shift in enforcement tactics, tech companies have made notable investments into emerging markets. 

Meta, for example, invested billions into expanding the Virtual Reality space, spawning over a thousand apps. Far from attempting to centralize the market, Meta’s actions thus far have focused on boosting the growth of a diverse and vibrant VR ecosystem. In fact, even though the company is struggling to turn a profit on its Metaverse project, the recently released Quest Pro headset is setting new standards for what VR could look like in the very near future.

Other large tech companies like Apple, Sony, and Samsung have been notable competitors to early VR leaders HTC and Valvecompetition which has driven innovation in virtual reality headset development. But more importantly, these companies have driven down costs to bring VR to a broader consumer market. What was once a few thousand dollars to experience is now attainable for a few hundred, and there is nothing anticompetitive about that.

This suit by the FTC against Meta, however, along with the latest complaint lodged against Microsoft, clearly indicates that no capable tech company will be allowed to continue growing  nascent markets like VR under the FTC’s current leadership.While the desire to promote competitive markets is noble, the latest string of suits from the FTC demonstrate a failure to comprehend the full picture of the Commission’s ability to disrupt innovation. Moreover, the FTC’s novel legal arguments face a steep hurdle in the courts. 

The FTC under Chair Khan is unlike the FTC of the past forty years, which followed the Consumer Welfare Standard to make the right call in these matters. This new Commission is organized around adversarial posturing without regard for success. But while the Commission is set on scaling down the dominance of tech companies, the real losers in this are consumers — especially gamers. Now that the Commission has drawn a clear line in the sand between tech companies and emerging consumer markets, indie games with limited graphics capabilities will likely plague virtual reality for the next few years.

In the future, the Commission’s battle against tech companies will expand to other industries. Especially now that the Commission no longer views consumer welfare as its guiding standard, the pitfalls of an unbridled and unchecked regulator will be felt throughout the market.