While American politicians and the media focus on China’s anticompetitive practices, similar practices in Japan go largely unnoticed. American auto-manufacturers have long suffered from Japanese protectionism and, more recently, U.S. tech and gaming companies have become targets.
A classic example of this Japanese protectionism is Sony and its PlayStation video gaming console, which controls more than 95% of the Japanese market for high-end consoles. The Japan Fair Trade Commission (JFTC) turns a blind eye as Sony violates Japan’s antitrust laws with its aggressive efforts to stifle competition from its main competitor in the market, Microsoft and its Xbox console and subscription service.
For example, Sony rewards game publishers for not distributing their games through Xbox. While that goes unpunished, the JFTC aggressively investigates American companies.
Meanwhile, the Federal Trade Commission (FTC), America’s competition regulator along with the Justice Department, is effectively aiding Sony’s monopolization of the Japanese market by trying to block a merger that would help Microsoft compete in the gaming industry. In December, the FTC filed a complaint seeking to prevent Microsoft from acquiring Activision, a publisher of video games, most famously Call of Duty.
The FTC alleges that the deal "will increase Microsoft’s already considerable power in video games" such that "Microsoft would have the ability and increased incentive to withhold or degrade Activision’s [gaming] content in ways that substantially lessen competition." The FTC is primarily concerned that Microsoft will use Call of Duty to attract gamers away from competitors and to Xbox.
Never mind that Sony’s PlayStation controls about 70% of the worldwide and nearly 60% of the American market for high-end gaming consoles, the market segment the FTC’s complaint focuses on. In reality, the proposed merger would increase competition in the gaming industry by allowing Xbox to challenge Sony’s dominance.
Consider the juxtaposition. While the JFTC overlooks Sony’s long entrenched monopoly in Japan, the FTC is going after a merger whose only threat to competition is purely speculative.
One factor behind the FTC’s misguided effort is Sony’s aggressive lobbying of the FTC, as well as European antitrust regulators, suggesting worst-case scenarios to justify regulatory intervention in the Activision deal. So focused is Sony on stifling competition from Xbox that it has refused Microsoft’s offer of a deal that would allay the FTC’s concerns about Microsoft withholding or degrading Call of Duty.
The 10-year deal would give Sony more favorable access to Call of Duty on PlayStation than it currently enjoys. Similar deals to ensure post-merger access to Activision games have already been accepted by Nvidia and Boosteroid, which both offer cloud gaming services, and Nintendo, maker of the Switch gaming console.
Common sense alone ensures that Microsoft won’t use control of Activision games to deny or degrade access on the PlayStation. It makes no sense for Microsoft to spend billions of dollars to acquire those games only to forsake most of the revenue from the games by cutting off the users who play them on the dominant platform, Sony’s PlayStation.
The failure of that logic to deter the FTC lends support to the suspicion that its attempt to block the deal is more of an ideological crusade than it is the result of an objective investigation. Suspicion is inevitable given that Lina Khan, the woman President Biden chose to lead the FTC, has openly expressed hostility to our nation’s largest tech companies, of which Microsoft is one.
That hostility was evident in the FTC’s failed attempt to block the acquisition of Within Unlimited, a virtual-reality startup, by Meta, the parent company of Facebook. The FTC dropped the case last month after a federal judge rebuffed its effort to enjoin the merger, despite the deference courts ordinarily show to executive agencies.
Said the Wall Street Journal, the federal court’s decision “appears to vindicate … claims that the FTC overreached by bringing a flawed antitrust case. [...] The case is also widely seen as emblematic of FTC Chair Lina Khan’s opposition to the expansion of big technology companies.”
It may be fashionable in many circles to bash Facebook, Microsoft, and America’s other tech giants, but they employ hundreds of thousands of Americans, and provide much of the technological innovation that benefits American consumers. All of that is threatened by the status quo, in which the Biden administration does little to combat Japanese protectionism, while its FTC appointees and its competition policy generally treat American tech companies as the enemy.
If President Biden is serious about helping American workers, strengthening the economy, and promoting innovation, there are two things he should do immediately. First, before the United States and the other G7 countries head to Hiroshima, Japan this May to discuss economic and trade policy – among other global issues – the President should instruct the Office of the U.S. Trade Representative to demand fair competition in Japan for American companies.
Second, President Biden should remind both the FTC and Justice Department that the purpose of our antitrust laws is to promote competition and innovation in the service of consumer welfare, not to impede the growth or success of large American companies in the service of a “big is bad” agenda.
If the FTC listens to that message, it will drop its opposition to the Activision merger or, at very least, reach a settlement that incorporates the sort of legally enforceable obligations that Microsoft has offered to Sony and agreed to with other gaming companies.
