Zach Meyers / Jun 2023
Image: Shutterstock
When Microsoft announced its plan to acquire games giant Activision for $69 billion, few commentators thought the deal would get an easy ride from competition authorities. Yet the UK Competition and Markets Authority’s decision to block the deal was met with fury by the two companies, who argued that the UK was “closed for business”. That fury escalated when the European Commission – despite its promises to get tough on big tech – allowed the deal.
The CMA’s decision in Microsoft/Activision came the same week that the government – after years of dithering – unveiled its Digital Markets, Competition and Consumers Bill. The Bill – the UK’s answer to the EU’s Digital Markets Act – would give the CMA broad new powers to curb perceived anti-competitive behaviour by big tech firms. Given the CMA’s bold decision, some parliamentarians are now questioning whether the CMA is aligned with the government’s pro-growth agenda and whether it has become too interventionist. Those MPs ought to be reassured. The CMA’s decision will not scare away start-ups. And, contrary to those who believe the CMA is getting too bold, the Activision decision shows that it has no appetite for overly intrusive regulation of big tech.
Arguments that the CMA’s tough approach to tech mergers will scare start-ups away from the UK have little basis. For one thing, tech firms cannot simply move outside the UK to avoid CMA review. The CMA can block deals regardless of whether the firm being acquired is physically present in the UK – so long as both firms have sufficient market share in Britain. Numerous recent cases, including Facebook/Giphy and Sabre/Farelogix illustrate this. Second, the UK is not alone in reviewing deals between two offshore companies. The EU has also prohibited deals that involve little current investment in Europe. Global deals simply face a greater risk of being blocked, wherever the merging firms are located. In that uncertain environment, the UK still easily outperforms the rest of Europe in terms of venture capital and the number of ‘unicorns’ (tech firms valued above $1 billion).
Moreover, the CMA remains less keen to tinker with markets than the Commission. In the Microsoft/Activision deal, both agencies agreed the merger could reduce competition in cloud gaming, a nascent technology which allows consumers to ‘stream’ games onto a user’s device, avoiding the need for an expensive console like a PlayStation or Xbox. Given Microsoft’s control of the Windows operating system (which many devices use) and its market-leading position in cloud infrastructure, the CMA and the Commission both worried gaining Activision’s gaming portfolio would give Microsoft an unassailable advantage in cloud gaming. The CMA and Commission’s divergent decisions, to a large extent, come down to their confidence in Microsoft’s promises to preserve competition. Microsoft had promised that consumers who purchased an Activision game would then be able to use it on competing third-party cloud gaming platforms. The Commission said (correctly) this would be an “improvement” over the status quo. The CMA argued that the promises made by Microsoft would require long-term supervision, and anyway would only protect one particular business model – where consumers bring their own pre-purchased games to a cloud gaming platform. Consumers might well prefer alternative business models – such as purchasing games from a cloud gaming platform ‘on demand’ rather than through Activision – which only thriving competition would deliver. The CMA was therefore right to decide that commitments would not replicate the benefits of “a free, open and competitive market” where different business models compete.
The CMA’s approach of preserving a competitive market structure – and allowing consumers to decide which business models succeed – shows more modesty, and more respect for the importance of open markets, than the Commission’s approach. This modesty ought to reassure right-wing MPs, who now fear the CMA has ‘gone rogue’ and question the wisdom of giving the CMA broad new powers to design rules for big tech firms so they act more fairly. MPs are right to be cautious: if the CMA uses its powers primarily for detailed and intrusive regulations, then this could stifle innovation by locking in suboptimal technologies and market structures – just like the EU’s approach to the Microsoft/Activision case would have done.
By rejecting Microsoft’s commitments, the CMA showed it understands the disadvantages of long-term, intrusive regulation – and that it does not want to take the same approach as the EU’s Digital Markets Act, which will impose permanent inflexible rules on tech firms. Blocking the merger was a one-off intervention that would keep the market free to innovate and experiment. That is precisely the approach the CMA should take with its new powers to regulate big tech. It should act boldly and then get out of the way, leaving tech firms free to innovate freely and allowing consumers to decide which businesses thrive.
