The US FTC (Federal Trade Commission) has filed a new complaint to the US Court of Appeals for the Ninth Circuit against Microsoft following the recent Game Pass price hike, alleging that this is exactly the type of post-merger behavior they wanted to prevent by blocking the acquisition. Here’s an excerpt from the complaint filed by FTC counsel Imad Abyad:
Product degradation—removing the most valuable games from Microsoft’s new service—combined with price increases for existing users, is exactly the sort of consumer harm from the merger the FTC has alleged. Microsoft’s price increases and product degradation—combined with Microsoft’s reduced investments in output and product quality via employee layoffs—are the hallmarks of a firm exercising market power post-merger.
Importantly, Microsoft’s actions are inconsistent with Microsoft’s representations below. Microsoft’s price increases coincide with adding “Call of Duty” (CoD) to Game Pass’s most expensive tier, and discontinuing the Console tier will happen shortly before releasing CoD’s newest game. Below, Microsoft promised that “the acquisition would benefit consumers by making [CoD] available on Microsoft’s Game Pass on the day it is released on console (with no price increase for the service based on the acquisition).” Microsoft’s post-merger actions thus vindicate the congressional design of preliminarily halting mergers to fully evaluate their likely competitive effects, and judicial skepticism of promises inconsistent with a firm’s economic incentives.
It is true that Microsoft lawyers promised in their memorandum defense against the FTC’s motion for a preliminary injunction to block the Activision Blizzard merger that there would be no Game Pass price increase. However, this promise was non-binding, and most consumers already expected a price increase following the addition of Activision Blizzard’s prized portfolio to the subscription service. Diablo IV was added to Game Pass in late March, and rumors suggest Call of Duty and other ABK games might be joining soon. Besides, Microsoft’s subscription service is hardly the only one to have raised its pricing plans recently. Ultimately, customers will decide whether the new price is too high.
Meanwhile, the FTC is still waiting on its appeal against the Microsoft/Activision Blizzard merger lodged a while ago at the Ninth Circuit Court of Appeals. The chances of the Federal Trade Commission being able to unwind the acquisition seem slim at this point, but cannot be altogether discounted.
