The Federal Trade Commission’s lawsuit to stop Meta Platforms Inc. from acquiring virtual fitness company Within Unlimited Inc. seems like a long shot. It’s aimed at a broader problem, however, that antitrust enforcers will have to solve if they intend to keep platform markets open and innovative.
The problem is that antitrust law is fundamentally backward-looking: It looks at existing market conditions, uses established economic methods to analyze them, and decides whether a practice was anticompetitive based on legal precedent set in prior cases. That is at odds with the growing need for enforcers to predict where nascent or fast-changing markets are going and mitigate harm in the future that could arise from mergers proposed in the here and now.
While Meta isn’t a virtual reality app behemoth now, it certainly aims to be one in the future—it rebranded to reflect that very aspiration. And its history of gobbling up adjacent competitors reasonably gives the FTC pause. But can existing US antitrust law deal with potential digital market threats using tools built for a bygone era? Are enforcers doomed to close the barn door after the virtual horses are well into the neighbor’s corn?
A History of Adjacent Acquisitions
The FTC’s lawsuit about the Within acquisition isn’t its only lawsuit against Meta. The enforcement agency is also currently suing Meta (formerly Facebook) about its decade-old acquisitions of competing social media applications in adjacent spaces. In retrospect, the FTC contends, those mergers—with What’s App and Instagram—kept the market stagnant and maintained Facebook’s monopoly on its own flavor of social media, violating Sherman Act section 2.
But the agency didn’t challenge those mergers when they occurred because they weren’t in Facebook’s core market. Sure, Facebook had a monopoly in personal social networking, but were temporary messaging or photo sharing really competing products? Because they weren’t deemed horizontal mergers at the time, the deals were seen as less threatening.
The FTC has since reassessed how the tech giants keep their monopolies and how adjacent markets work in online markets. The allegations in the state and federal antitrust suits against Google Inc., as well as the FTC’s case against Facebook’s monopoly, demonstrate a new understanding of the importance of controlling the markets adjacent to an online monopoly. Doing so can create a “ring moat” around the monopoly and prevent any newcomer from gaining enough traction to benefit from network effects—that tipping point in online platforms when the presence of other users starts to draw new users, cementing a platform’s position.
The allegations the FTC makes against Meta in the monopoly suit go further. The FTC alleges that Meta doesn’t have the capacity to innovate for itself, so it acquires market leaders rather than using its deep pockets to build a competing product. The FTC alleges that such a strategy damages innovation and competition.
That’s the basic allegation in the FTC’s case against the Within merger. The FTC alleges that Meta is acquiring Within rather than build a virtual fitness app of its own, and also that the company is building an ecosystem of VR market capability that will make it impossible for another provider to effectively compete.
The FTC isn’t saying that Meta has a monopoly in fitness apps, or in virtual reality programs generally—although Meta does have the most successful hardware for VR, thanks to a 2014 merger with Oculus VR Inc. Instead, the FTC is concerned that Meta is using its financial power, gained from monopoly in one area, to assemble a fortress in the VR market that no newcomer will be able to successfully besiege. Essentially, the argument is that these markets naturally become monopolies, and that assembling an integrated, broad hardware and software presence early in the game can ward off would-be entrants and cement a dominant position.
Dueling Innovation Models
Meta contends that the FTC’s interpretation of the Within deal is not how innovation works in tech. Small companies can draw the capital to innovate in part because of the promise that their model can be sold to the deep-pocket platforms. Big companies aren’t nimble, the general wisdom goes, so they purchase innovative products from startups, which cashes out those innovators to go build more digital mousetraps. Small companies innovate, then big companies step in and scale the winning new products for mass distribution.
According to Meta, its Quest platform for VR applications is driving innovation in the space. Meta touts that Quest doesn’t impose the same restrictions on developers that have drawn lawsuits and enforcement against Apple and Google, two tech giants accused of monopolizing app sales in their own platforms. “With over a thousand apps having been built for Quest and the number earning over a million dollars in revenue having doubled year over year, it is clear that the ecosystem we are building is creating meaningful innovation opportunities,” Meta said in a statement.
The FTC isn’t alone in worrying about the potential for platform behemoths to keep markets stagnant, or take over emerging markets, by virtue of their vast user base and very deep pockets.
The UK’s Competition and Markets Authority, for example, is currently battling Meta over its relatively tiny purchase of GIF repository Giphy Inc., making similar arguments to those in the FTC’s lawsuit about nascent competition, adjacent markets, and innovation. The EU has a new law aimed at reaching consolidation in digital markets before they “tip” into monopolies, and US legislators have a closing window during the current Congress to enact platform-specific antitrust law with similar aims.
The goal of these regulatory and legislative measures, while recognizing the massive benefits of innovative online platforms, is to address anticompetitive issues in these markets before they stagnate into fortress monopolies. But antitrust law isn’t built for rapidly shifting markets, and courts often don’t buy the enforcers’ predictions about how markets will develop. Particularly in the US, headwinds facing merger enforcement actions are growing stiffer, and enforcers’ track record when addressing concentration in shifting and potential markets is very mixed.
In short, the FTC’s move against Meta’s play for Within clearly sees potential problems in the virtual world, but may not be a viable approach to addressing them in the real world. US antitrust law, at least at present, only shuts the barn door once the horses are proven to be out of the barn.
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