Senior Vice President, International Regulatory Affairs & Antitrust, U.S. Chamber of Commerce
August 31, 2022
For four decades, America’s antitrust laws have been tethered to standards that impose discipline on regulators and offer predictability to regulated parties. Before challenging a merger, regulators are required to provide evidence, grounded in economics, that the merger would likely harm consumers.
Those days are now apparently gone. Last month, the Federal Trade Commission (FTC) sued Meta to prevent its acquisition of Within Limited, which owns a virtual reality fitness app. In any traditional antitrust analysis, which looks closely at market power and harm to the consumer, the suit seems to be a clear sign of overreach. Because antitrust authorities have traditionally operated within well-established guardrails, the U.S. Chamber has historically been reluctant to opine on challenges to specific mergers. In this case, however, the glaring lack of evidence and the potential new precedents are so troubling, they warrant the attention of the entire business community.
Neither Meta nor Within Limited have any market power in virtual reality, fitness apps, or fitness generally. There is no reasonable prospect of the merged company raising prices, lowering output, or reducing their investment in these technologies – on the contrary, many companies are fiercely competing to expand their fitness product offerings.
Rather than economics, the FTC’s complaint seems grounded in the malleable concept of “potential future competition.” According to the complaint, without the acquisition, Meta might have developed a competing app. Or the acquisition might help Meta in “building, and ultimately controlling, a VR ‘metaverse,’” through network effects. More ominously still, “The proposed acquisition of Within would be one more step along that path toward dominance.”
If this sort of rank speculation becomes the norm, the FTC may as well dispense with its economists. The FTC has no idea, because no one can have any real idea, what the market for virtual reality or for fitness apps will look like a year from now, let alone five or 10 years down the road. Companies have repeatedly tried and failed, and are still trying and failing, to develop offerings that consumers want. Some take off, but the vast majority do not.
Likewise, in this case, the market should decide whether the combined company’s virtual reality products take off, not government agencies. Unfortunately, by abandoning traditional antitrust concepts such as market power and consumer harm, the FTC has now opened the door to challenge any private conduct, by any company, as a threat to “potential future competition.”
Any acquisition might reduce an investment in some other technology, any contract could unfairly exclude a potential competitor, etc. For decades, regulators—and certainly courts—have demanded more than conjecture to deem private conduct in violation of the antitrust laws, but without a tether to longstanding, bipartisan antitrust concepts and empirical economics, anything goes.
These concerns become even more acute considering public reports that the FTC’s leadership overruled the agency’s career staff in filing the complaint. Of course, there is nothing inherently wrong with Senate-confirmed leaders overruling the career staff. Still, when that disagreement tends to give the political leadership far more discretion in determining what types of cases to bring, and against whom to bring them, one can reasonably wonder whether the rule of law will devolve into the rule of policy and political preferences.
Beyond these legal concerns, everyone should worry about the lawsuit’s potential to deny capital and technical expertise to entrepreneurial companies. The U.S. has a vibrant innovation ecosystem that allows startups to raise capital and garner technical expertise from larger companies. American companies lead the world because they have the freedom to invest, innovate, scale, and compete.
This lawsuit could herald a change whereby regulators forbid pioneering companies from raising capital and earning a return for entrepreneurs. Any acquisition, regardless of size, scale, market, or efficiency, could become the subject to an enforcement challenge from antitrust regulators. This is not the sort of predictability, stability, and transparency that helps companies attract capital.
Rather than shred existing antitrust norms and hamper the startup economy, the FTC should stop its speculative theories and focus on economics.