In an unusual turn of events, the FTC is now dropping some of its original claims from a lawsuit that seeks to block Meta’s acquisition of Supernatural, Within’s virtual reality (VR) fitness app. The agency’s decision to amend the complaint against Meta could absolutely have an impact on the outcome of the case. The result of this lawsuit could set the future trajectory of antitrust enforcement, especially because it’s regarded as the first major act to put the populist antitrust premise to the test.

In July, the FTC announced its intent to block the acquisition, alleging that Meta is a potential entrant in the virtual reality dedicated fitness app market and there’s a reasonable probability that it’ll build its own VR app to compete in the space. But instead of entering, the FTC claims Meta chose to try buying Supernatural, thus dampening future innovation and competitive rivalry.

After originally claiming that Meta and Supernatural are competitors, the FTC now claims that they are not.

The FTC’s original claim relies on a convoluted definition of “relevant market,” alleging that Meta is simultaneously a competitor in the VR fitness market and operating on the periphery. Yet dissecting this premise makes it clear that it’s based on the belief that a company’s size can make it inherently dangerous, giving no regard to objective consumer impact.

The outcome of the case could have repercussions beyond the lawsuit’s timeline. A loss for the agency could undermine the zealous approach of the populist antitrust movement and signify a major win for consumer welfare and innovation, or vice-versa. A win-win scenario is unlikely.

The “big is bad” narrative put forth in the FTC’s claim follows the same rhetoric that lawmakers and regulators in Washington have been pushing for the last couple of years: that big firms are inherently bad for the economy, innovation, the worker and the consumer.

Efforts to establish a new antitrust regime are well underway. Earlier this year, the Department of Justice (DoJ) and the FTC announced plans to update the merger guidelines, and their intent to move away from the traditional focus of antitrust enforcement on consumer harm.

The basis of the FTC’s complaint against Meta’s acquisition of Within is a further codification of “big is bad,” but with a new twist. The core of the FTC’s argument relies on the assumption that Meta’s size and resources enable the tech giant to develop its own VR fitness software and therefore eliminate beneficial rivalry. This assumption runs counter to the fact that Meta has already spent nearly a decade and invested billions of dollars in developing and expanding the VR space. These investments, coupled with the competitive updates to its existing apps, suggests that Meta is more keen on improving user experience and not buying and burying potential competitors.

Meta’s size alone should not be indicative of harm. Acting on that assumption puts the consumer and innovation at risk.

Historical evidence suggests that competition policy and antitrust enforcement work best when focused on empirical data concerning consumers and the market, and not on populist sentiments. After all, antitrust is about protecting the competitive process so that consumers can benefit from vigorous competition.

Unfortunately, the approach the FTC is taking with this experimental case, where it looks to test its populist premise by seeking to block the acquisition, is not conducive to a win-win scenario for the consumer.

A win for the agency would send a strong chilling message to anyone who wishes to innovate in VR technology. Small developers and startups are essential to the growth and vivacity of VR and the metaverse, but they don’t have the resources to make their vision a reality without the help of larger firms. As such, mergers and acquisitions are the most common exit strategy for startups, with 58% of startups expecting to be acquired. The FTC’s efforts to block acquisitions will send an alarming signal to the startup and venture capital community. The terrible policy mistake will starve startups of much-needed resources and significantly slow down the rate of growth and innovation.

Consumer welfare, for the first time in decades, would be put on the backburner. Proper antitrust enforcement should be first and foremost about protecting consumers and the competitive process, not about protecting competitors. Abandoning this core principle would deprive consumers of many of the benefits of vigorous competition. While continued antitrust vigilance is always needed, sound economic analysis and a clear demonstration of consumer harm should be what guides antitrust policy. The opposite would defeat the agency’s supposed pro-consumer mission.

Undoubtedly, a win for the FTC would come at the expense of consumers and innovation in new technologies like VR. Experimenting with a novel theory of harm without any clear guidelines would be at odds with decades of antitrust policy and legal precedent, further raising legal uncertainty regarding M&A.

The FTC’s move is groundbreaking, as it puts a new, populist antitrust vision to test, but it’s nevertheless an experiment. Experiments, however, are set to fail at a high rate without proper risk assessment. At this point, there is no indication that the FTC has made that assessment, and the agency’s backpedaling to a slimmed-down complaint is very suggestive of that, leaving much of its claim to be rather speculative. Populist sentiments do not provide adequate justification, especially when consumer welfare and innovation are collateral damage.

Krisztina Pusok is the director of policy and research at the American Consumer Institute, a nonprofit educational and research organization. For more information about the Institute, visit www.TheAmericanConsumer.Org or follow us on Twitter @ConsumerPal.