Amicus Brief

Amicus Brief of Economists and Antitrust Scholars in FTC v Microsoft

Interest of Amicus Curiae

Amici curiae are economists and antitrust scholars who write to share their perspective with the Court.[1] The names of the signatories appear in the attached Addendum.

We have an interest in ensuring the proper application of antitrust doctrine and that it reflects current economic principles.[2]

We think that the District Court followed the law and sound economic principles in reviewing the FTC’s challenge to the vertical merger between a platform provider (Microsoft) and a content creator (Activision).

Summary of the Argument

The FTC proceeded against the proposed Microsoft-Activision merger with a prospective theory based on the FTC’s predicted economic incentives of Microsoft to foreclose Activision’s first-person shooter video game, Call of Duty—a 20-year, multi-platform franchise—from all rivals in three proposed markets: high performance consoles, cloud streaming, and library subscription services. After the parties submitted extensive factual and expert evidence, the District Court concluded that the FTC had not shown a likelihood that it would prevail on its claim that this vertical merger may substantially lessen competition.

The District Court followed the proper framework for reviewing the merger given the FTC’s vertical theory of harm. First, a court must consider whether the combination has the ability and the incentive to foreclose the input from rivals. If the court determines both ability and incentive exist, the court must decide what effect, if any, such a foreclosure will have on competition.

Accepting the FTC’s narrow high-performance-console market for Rule 13(b) purposes, the District Court concluded that Microsoft lacked an economic incentive to foreclose Call of Duty from Sony, the dominant player in the FTC’s market. In so doing, the District Court rejected the FTC’s theory that Microsoft’s commitment to Sony to continue offering Call of Duty on PlayStation was a “proposed remedy” unworthy of consideration under Rule 13(b).

The District Court also concluded that the merger would expand access to Call of Duty to the benefit of gamers. With respect to the nascent cloud-streaming market, the District Court found that, pre-merger, Activision had not made Call of Duty available to any cloud-streaming providers and was unlikely to do so based on a long-held view that doing it was not in its interest. Microsoft’s plan to add Call of Duty to its streaming service represented an output-expanding product of the merger. Moreover, Microsoft had reached agreements with five (5) cloud-streaming providers to allow them to stream the game as well, which the District Court concluded would result in the merger creating more (not less) Call of Duty availability. And the District Court’s consideration of these agreements—including with sophisticated providers like Nvidia—countered the FTC’s central theory that Microsoft would limit the availability of Call of Duty to its own platform.

Regarding the proposed library subscription market, the District Court found that, pre-merger, Call of Duty was not currently available to gamers via subscriptions, and that Activision had no plans to offer it to gaming platforms. Moreover, based on current market conditions and Activision’s actions before the merger, the District Court found that, even accepting for preliminary injunction purposes that Microsoft would offer Call of Duty exclusively on its own subscription service, the merger would not represent input foreclosure because the alternative was no access to the game by subscription at all. The District Court rejected the FTC’s economic theory that more availability of an input, even if only via Xbox’s library subscription service, could result in less competition.

Finally, the critical element in the analysis of the effects of the merger is the impact that potential foreclosure would have on competition. The District Court did not reach this ultimate step, having found no incentive to withhold Call of Duty. But the fact that the FTC’s expert economist concluded that, at worst, the transaction would result in a 5.5% share shift from the dominant platform (Sony PlayStation) to the much smaller platform (Xbox), suggests that the transaction is unlikely to harm competition. And it belies the FTC’s other argument that the transaction would increase a trend toward concentration, which in any event is not a proxy for showing harm to competition.

[1] Under Rule 29(a)(4)(E) of the Federal Rules of Appellate Procedure, amici certify that (i) no party’s counsel authored the brief in-whole or in-part; (ii) no party or a party’s counsel contributed money that was intended to fund preparing or submitting the brief; and (iii) no person, other than amici or its counsel, contributed money that was intended to fund preparing or submitting the brief.

[2] All parties have consented to the filing of this brief.