When Lina M. Kahn, Associate Professor of Law at Columbia University, was sworn in as Chair of the Federal Trade Commission (FTC), she pledged to “protect the public from corporate abuse.” Unfortunately, in fulfilling this promise, the FTC has turned an increasingly skeptical eye toward mergers and acquisitions, arguing they hurt competitors, the marketplace, and consumers. Aside from the fact that antitrust law has traditionally focused on consumer harm, this increased hostility at the FTC over mergers and acquisitions will disrupt the innovative technology ecosystem that generates significant benefits for American consumers. In disrupting this ecosystem, Chair Kahn’s FTC has declared war on innovation, American consumers, and the competitive marketplace that rewards success.
Recently, the FTC has intervened in pro-consumer business activities by seeking to block two acquisitions involving Microsoft and Meta, the parent company of Facebook. These interventions are unsurprising given public and political vitriol directed toward large technology companies, and Chair Kahn’s public embrace of a “big is bad” approach to antitrust enforcement.
Antitrust enforcement has centered around two competing visions. The first, which traces its origins back to the progressive era, assumes the existence of big companies always harm competition, markets, and consumer interests. Such an approach, colloquially known as “big is bad,” has influenced recent legislative proposals, such as the American Innovation and Choice Online Act, the Open App Markets Act, the Journalism Competition and Preservation Act, and the Platform Competition and Opportunity Act. This approach has gained new traction with the neo-brandeis movement, which is similarly hostile to large companies but seeks to inject public interest into the debate, forcing courts to consider “a variety of social and political goals,” not just consumers or competition.
The competing vision of antitrust enforcement is the consumer welfare standard, articulated by Robert Bork and later adopted by the U.S. Supreme Court. Under the consumer welfare standard, “business conduct and mergers are evaluated to determine whether they harm consumers in any relevant market. Generally speaking, if consumers are not harmed, the antitrust agencies do not act.” For example, the consumer welfare standard guided the Department of Justice’s Antitrust Division to approve airline mergers in the early 2000s. Specifically, it became clear to regulators that larger airlines could create efficiencies “in airport operations, information technology, supply chain economics, and fleet optimization that will benefit consumers” through lower ticket prices.
Deferring to the dated big is bad approach to antitrust enforcement, FTC recently announced its intention to block Microsoft’s $69 billion purchase of Activision, creator of the popular Call of Duty series. The FTC expressed concern that “Microsoft would have both the means and motive to harm competition by manipulating Activision’s pricing, degrading Activision’s game quality or player experience on rival consoles and gaming services, changing the terms and timing of access to Activision’s content, or withholding content from competitors entirely, resulting in harm to consumers.” These concerns existed despite a promise from Microsoft to make Call of Duty available to rivals Sony and Nintendo under a legally enforceable agreement.
Additionally, the FTC is seeking to block Meta’s acquisition of Within, the developer of Supernatural, a popular virtual reality fitness application. In its lawsuit, the agency argued, “Meta is trying to buy its way to the top” instead of competing. Since announcing its opposition to the acquisition, the FTC has since narrowed its complaint, acknowledging that Meta and Within Unlimited are not direct competitors. Similarly to the case against Microsoft, the FTC is grounding its case in speculation and an outdated ideology that reflexively assumes big business is bad.
For businesses, especially start-ups, mergers and acquisitions provide an attractive and profitable exit strategy that could be closed off if the FTC’s recent enforcement efforts are successful. Studies have routinely shown that most new companies, 58 percent, expect to be acquired by a larger company, and that acquisition is a principal reason for establishing a start-up. Removing this incentive by seeking to block mergers in federal court will ultimately result in entrepreneurs launching fewer companies, depressing innovation, and denying consumers access to the next generation of goods and services.
For a federal agency whose mission statement centers around protecting consumers, denying them the next generation of goods and services and depressing innovation should be an anathema.
Hostility toward mergers and acquisitions also creates uncertainty for businesses, especially those that expect to be acquired or are being acquired by larger companies. Fearing unnecessary interference from the FTC and the massive legal bills associated with defending these deals in court, businesses will face a choice. Either they will have to pull out of deals that spur innovation, competition, and growth or divert funding from research and development into paying expensive lawyers. In both instances, consumers lose out, and innovation suffers. These effects will be particularly pronounced among smaller businesses with less capital to meet the financial obligations of dealing with hostile antitrust enforcers.
Despite unfounded fears that mergers and acquisitions harm consumers, the economic reality is that they generate substantial benefits for consumers by lowering prices, allowing greater integration of products, developing economies of scale, expanding consumer access, and increasing research and development funding. Such benefits underpin the consumer welfare standard and the philosophy that has made the U.S. one of the most dynamic and innovative economies.
Since shifting its attention away from Facebook, once the world’s largest social media platform, and onto immersive technology, Meta has acquired nine virtual reality applications and spent over $31 billion on developing the metaverse. Such acquisitions and investments have allowed the products of small companies to be improved, scaled, and made widely available to consumers. Such investments have not only made immersive technology a consumer good when it was previously confined to the realms of science fiction, it has also allowed the company to produce an overall better product.
Microsoft’s acquisition of smaller companies has also resulted in significant benefits for Americans. For example, in 2011, the tech giant acquired Skype for $8.5 billion. At the time, the platform had around 840 million users. After purchasing Skype, Microsoft integrated the software into its devices, gaming consoles, and email suite. Such integration has made it easier for consumers to connect with friends and family. As a result, Skype now has over 2 billion users worldwide.
In both instances, acquisitions by large technology companies have resulted in tangible benefits for American consumers that would have been denied had the FTC been guided by its present hostility toward mergers and acquisitions.
Despite the clear benefits of mergers and acquisitions, the FTC’s desire to prevent Microsoft from acquiring Activision and Meta from purchasing Within shows they are more interested in kowtowing to an outdated antitrust ideology than meeting its mission of protecting consumers. In doing so, they are disincentivizing entrepreneurs from building, creating unnecessary legal uncertainty, and undermining transactions that have technology more accessible. Unfortunately, with Chair Kahn leading the FTC, it’s unlikely the agency will see the error of its ways and embrace the philosophy that has created one of the most innovative economies on the planet.
In the end, though, consumers lose out.
