Meta’s acquisition of the game company Within will be allowed to move forward following a decision from United States District Judge Edward J. Davila. For consumers, this decision is a victory. In practice, it asserts that when it comes to businesses, big isn’t bad, nor is it illegal.
The Federal Trade Commission (FTC) sought to block Meta’s acquisition of Within Unlimited Inc. due to the belief that it “would harm competition and dampen innovation” within the extremely narrow market definition of “fitness and dedicated-fitness VR apps.”
The district court chose to accept the narrow market definition of dedicated-fitness VR apps. Where the FTC failed was in demonstrating that the purchase of Within would harm either perceived or actual potential competition. Actual potential competition is the idea that a relevant market is deprived of competition that would have occurred without the merger or acquisition. In the case of Meta, the FTC argued that Meta could have entered the market in the absence of the Within acquisition, and as a result competition will decrease. Perceived competition is the idea that by existing on the fringe of a market, some firms can influence competition based on the perceived potential to enter.
The limited market definition of VR fitness apps made it easier to show concentration, which is a prerequisite for either perceived or actual competitive harm. Despite this appearance of concentration, the FTC ultimately failed to show that competitive harm was likely.
Since the market was narrow, and Meta did not have a dedicated-fitness VR app, the FTC needed to show that the company was likely to develop such a specialized app or was at the very least — in the case of perceived potential competition — seen as potentially likely to create one. This was a tall ask, and the court determined that the FTC had failed to establish a “likelihood of ultimate success,” which would have been necessary to grant an injunction.
A major takeaway from the Meta decision is that its size was not enough to determine whether Meta was a potential competitor, let alone whether it made the acquisition anti-competitive.
While the court acknowledged that Meta possessed the resources to create a fitness-dedicated VR game and had invested $12.4 billion in the last fiscal year in VR, it still wasn’t enough to deem the company a competitor.
The case of United States v. Marine Bancorporation, Inc. — a lawsuit cited in the decision — recognized that barriers to entry should be a consideration when determining the likelihood of entering a market in potential competition. Meta’s size alone was not enough to overcome the barriers in the form of specialized knowledge it would have to break through to create a fitness-dedicated VR game.
The determination that Meta wasn’t a competitor in the fitness-dedicated space bodes ill for efforts designed to challenge tech companies under the premise that big is bad. This “big is bad” premise could be found in multiple pieces of legislation last year, which ultimately failed to pass and face an uncertain future in the new session.
Last session, Sen. Amy Klobuchar (D-MN) introduced the Platform Competition and Opportunity Act. Among the limits this bill would place on mergers and acquisitions for certain tech companies is the requirement that the deal is under $50 million in value and does not involve direct or nascent competitors.
A bias against size was also apparent in Klobuchar’s American Innovation and Choice Online Act. This bill would put limits on self-preferencing for specific large tech companies. The establishment of a size threshold in both pieces of legislation shows the presumption that size matters in determining the competitiveness of behavior. The Meta decision, however, shows that a large company is not automatically competitive in any given submarket solely because of its size.
The decision in favor of Meta’s merger with Within will affect the trajectory of antitrust efforts even outside of the FTC. While limits on mergers and self-preferencing operate under the presumption that a firm’s size can in part determine its competitiveness, the court’s determination shows that this isn’t the case. Only time will tell whether lawmakers will move away from the idea that big is bad, but this decision marks a step in the right direction.