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The FTC’s Unwarranted Fight with Meta Will Harm Consumers

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The FTC’s Unwarranted Fight with Meta Will Harm Consumers

September 8, 2022

With the Federal Trade Commission’s recent effort to block the merger between Meta and fitness app developer Within, the Democratic leadership of the FTC is showing its preference for playing politics rather than protecting consumers. The Commission argues that the merger would give Meta a dominant position in the market for “dedicated VR fitness apps.” This type of niche market definition sends a message to technology firms that the Biden administration will no longer tolerate Big Tech’s acquisition of start-up companies.

Government actions to block mergers should answer a simple question: does the merger harm consumers through increased costs, fewer options, or decreased innovation? When asking the question, the government should define the relevant economic market as broadly as possible. Broad definitions allow for greater analysis and a clearer picture; narrow definitions allow the government to play politics with mergers.

Virtual reality is a nascent industry, with several competitors seeking consumers’ attention. The companies seeking to develop VR technologies include Facebook’s Meta Quest, with an estimated 38 percent of the market, followed by Sony with an estimated 22 percent market share. Several other companies combine to serve almost 25 percent. Experts predict the global number of VR headsets manufactured worldwide is currently between 11 million and 35 million headsets per year, and project the number to increase to 43 million units within a few years.

If the FTC is not basing its decision to block the Meta/Within merger on economics or consumer welfare, it is making a political statement. Commissioner Christine Wilson, who along with fellow Republican Commissioner Noah Philips opposed the FTC’s lawsuit, suggested as much when she tweeted her opposition to the complaint, noting that “[t]he Neo-Brandeisians talk a big game about big tech, but the FTC complaint against Meta notes four other Facebook acquisitions in the VR space since Biden was inaugurated that went unchallenged.” Chamber of Progress founder Adam Kovacevich echoed Wilson’s thoughts, tweeting that FTC Chairman Khan overruled FTC staff attorneys when filing the merger challenge, which means that FTC leadership is rejecting the experience and knowledge of its staff, favoring political actions rather than actions fulfilling the Commission’s consumer-oriented mission.

The government has a history of protecting consumers while pushing the boundaries of competition enforcement actions relating to emerging technologies. Past complaints, whether brought by the FTC or the Department of Justice, include allegations that would make sense even to non-experts. For example, when it brought an antitrust action against Microsoft for the technology company’s refusal to allow third-party browsers on its Windows operating system, the DOJ defined the relevant consumer market as that for “personal computers operating systems.” Similarly, in a case against chip manufacturer Intel, the government defined the relevant market as all “general purpose microprocessors.” Compare those broad definitions to the FTC’s narrow definition in the Meta/Within merger of “the market for VR dedicated fitness apps,” clarified to mean “[VR] apps … that are designed so that users can exercise through a structured physical workout in their own homes.”

Narrow definitions are the FTC’s current modus operandi in cases against technology companies. In another case against Meta, the FTC defined the relevant social media market as “personal social networking services … consist[ing] of online services that enable and are used by people to maintain personal relationships and share experiences with friends, family, and other personal connections in a shared social space,” which excludes other social networking platforms such as LinkedIn, Twitter, TikTok, and SnapChat.

In baseball, fans understand the statistic that a batter has the best average of switch hitters in a particular stadium when batting left-handed. On the other hand, if commentators claim that a switch-hitting shortstop has the best batting average from the right-hand side of the plate during home games on Tuesdays in the month of August, the statistic becomes meaningless. This is what the FTC has done by focusing on narrow definitions. The definition of market is meaningless, as it is defined to apply to only one company or one specific niche product, rather than the market as a whole.

Shifting from the consumer welfare standard to “big is bad” will have disastrous consequences for America’s status as a global leader in innovation. Moving from broad, easily understandable definitions of a market to narrow, niche definitions is clear evidence that the FTC is willing to play politics, sending messages to companies rather than protecting consumers. The long-term consequences for such a move are clear: smaller, innovative companies will have a smaller reach than if the FTC allowed technology companies to acquire them and integrate their ideas into existing products, and consumers will be the ones paying the price.

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