In September 2023, UK mobile phone network operators Vodafone and Three (owned by CK Hutchinson) announced their intention to merge. At the time, in terms of total revenue from the supply of mobile phone services to consumers, Vodafone and Three had market shares of 23% and 12%, respectively.
In addition to Vodaphone and Three, there are two other major network operators – the BT Group (BT & EE) and Virgin-media 02, with market shares of around 31% and 23%, respectively, with other operators having a combined market share of 12%. As we shall see below, these other operators use one of the four major networks. Therefore, the merged entity of Vodafone-Three would become the market leader with a share of around 35% and there would only be three major network operators competing in the UK.
Not surprisingly, the UK competition agency, the Competition and Markets Authority (CMA), decided to conduct a detailed investigation into whether the merger would harm competition. However, in early December 2024 the CMA announced its decision to allow the merger to go ahead, subject to several important commitments by the merging parties.
CMA’s phase 1 findings
The CMAs phase 1 investigation raised several concerns with the merger (see fifth CMA link below).
First, it was worried that retail and business customers would have to pay higher prices for mobile services after the merger.
Second, in addition to the four mobile network operators, the UK market is served by a number of mobile ‘virtual’ network operators (MVNOs), for example Sky Mobile and Lyca Mobile. As we saw above, these suppliers account for around 12% of the consumer retail market. The MVNOs do not own their own networks and instead agree wholesale terms with one of the network operators to access their network and supply their own retail mobile services. The CMA was concerned that since the merger would reduce the number of networks competing to host these MVNOs from four to three, it would result in MVNOs paying higher wholesale access prices.
Vodafone and Three did not offer any remedies to the CMA to address these competition concerns. Consequently, the CMA referred the case to phase 2 for a more thorough investigation.
CMA’s phase 2 findings
The CMA’s analysis in phase 2 confirmed its earlier concerns (see linked report below). It was still worried that because the merged entity would become the largest network operator, retail customers would face higher prices or get a poorer service – for example, a reduced data allowance in their contract. In addition, the CMA remained concerned that the MVNOs would be negatively impacted and that this would lessen their ability to offer the best deals to retail customers.
However, during the phase 2 investigation, the merging parties put forward various efficiency justifications for the merger. They argued that the merger would provide them with much needed scale and investment capacity to improve their network and roll-out 5G technology. The CMA recognised these claims but questioned the merging parties’ incentives to go through with the investment once the merger was approved. Furthermore, it was concerned that if they did invest, this would be funded by raising the prices charged to consumers.
As a result, the CMA only agreed to allow the merger once Vodafone and Three accepted remedies that would address these concerns.
The remedies necessary for the merger to proceed
First, the merged entity must cap a range of tariffs and data plans it offers in the retail market for three years.
Second, again for three years, it must commit to maintain the wholesale contract terms it offers to MNVOs.
Finally, over the next eight years, the merged entity must deliver the network upgrade plans that it claimed the merger would allow. The CMA believes that in the long run this network development would significantly boost competition between the three remaining mobile network operators.
The acceptance of remedies of this nature was unusual for the CMA. Typically, like other competition agencies, the CMA has favoured divestment remedies in which the merging parties are required to sell-off some of the assets or capacity acquired. In contrast, the remedies in the Vodafone-Three deal impact on the merging parties’ behaviour.
One clear disadvantage of such remedies is that they require the merged firm’s actions to be monitored, in this case for eight years, to make sure it adheres to the agreed behaviour. One reason why the CMA may have been willing to accept this is that the communications industries regulator, OFCOM, will be able to assist with this monitoring.
It was also surprising that the CMA was willing to allow the number of network operators to decrease to three. Previously, there had been a perception that it was important to maintain four networks. This was certainly the view in 2016 when Three’s attempted merger with O2 was prohibited. This decision was made by the European Commission (EC). However, the CMA raised serious concerns to the EC and when the merging parties offered behavioural remedies argued that these were:
materially deficient as they will not lead to the creation of a fourth Mobile Network Operator (MNO) capable of competing effectively and in the long-term with the remaining three MNOs such that it would stem the loss of competition caused by the merger.
Why has the authorities’ attitude towards the merger changed?
So why has there been a change of stance in this latest attempted merger in the mobile phone sector?
One explanation is that the market has fundamentally changed over time. The margins for network operators have declined, network usage has grown and there has been a lack of investment in expensive 5G technology. This would certainly fit with the CMA’s desire to use the remedies to facilitate network investment.
A second possible explanation is that the CMA has recently faced criticism from UK Prime Minister, Keir Starmer (see third Guardian article below). In a speech at the International Investment Summit in London in October 2024, he said that
We will rip out the bureaucracy that blocks investment and we will make sure that every regulator in this country take growth as seriously as this room does.
In response to this, the CMA has indicated that in 2025 it will review its approach to mergers, ensuring that only truly problematic mergers don’t proceed, and reconsider when behavioural remedies may be appropriate (see final CMA link below).
The CMA’s decision in the Vodafone-Three case certainly demonstrates that it is now willing to accept behavioural remedies when there is a regulator in place to support the subsequent monitoring.
It will be interesting to see how this merger affects competition in the mobile phone market and, more generally, whether the CMA starts to implement behavioural remedies more widely, especially in markets where it would have to do all the subsequent monitoring.
Articles
CMA reports, etc
Questions
- Why is it beneficial to have MVNOs in the market for mobile phone services?
- Why is it important that MVNOs have a choice of mobile networks to supply their retail mobile services?
- How do you think the other mobile network operators will react to the Vodafone-Three merger?
- Compare the relative benefits of blocking a merger with requiring merging companies to adopt certain remedies.
Artificial Intelligence (AI) is transforming the way we live and work, with many of us knowingly or unknowingly using some form of AI daily. Businesses are also adopting AI in increasingly innovative ways. One example of this is the use of pricing algorithms, which use large datasets on market conditions to set prices.
While these tools can drive innovation and efficiency, they can also raise significant competition concerns. Subsequently, competition authorities around the world are dedicating efforts to understanding how businesses are using AI and, importantly, the potential risks its use may pose to competition.
How AI pricing tools can enhance competition
The use of AI pricing tools offers some clear potential efficiencies for firms, with the potential to reduce costs that can potentially translate into lower prices for consumers.
Take, for instance, industries with highly fluctuating demand, such as airlines or hotels. Algorithms can enable businesses to monitor demand and supply in real time and respond more quickly, which could help firms to respond more effectively to changing consumer preferences. Similarly, in industries which have extensive product ranges, like supermarkets, algorithms can significantly reduce costs and save resources that are usually required to manage pricing strategies across a large range of products.
Furthermore, as pricing algorithms can monitor competitors’ prices, firms can more quickly respond to their rivals. This could promote competition by helping prices to reach the competitive level more quickly, to the benefit of consumers.
How AI pricing tools can undermine competition
However, some of the very features that make algorithms effective can also facilitate anti-competitive behaviour that can harm consumers. In economic terms, collusion occurs when firms co-ordinate their actions to reduce competition, often leading to higher prices. This can happen both explicitly or implicitly. Explicit collusion, commonly referred to as illegal cartels, involves firms agreeing to co-ordinate their prices instead of competing. On the other hand, tacit collusion occurs when firms’ pricing strategies are aligned without a formal agreement.
The ability for these algorithms to monitor competitors’ prices and react to changes quickly could work to facilitate collusion, by learning to avoid price wars to maximise long-term profits. This could result in harm to consumers through sustained higher prices.
Furthermore, there may be additional risks if competitors use the same algorithmic software to set prices. This can facilitate the sharing of confidential information (such as pricing strategies) and, as the algorithms may be able to predict the response of their competitors, can facilitate co-ordination to achieve higher prices to the detriment of consumers.
This situation may resemble what is known as a ‘hub and spoke’ cartel, in which competing firms (the ‘spokes’) use the assistance of another firm at a different level of the supply chain (e.g. a buyer or supplier that acts as a ‘hub’) to help them co-ordinate their actions. In this case, a shared artificial pricing tool can act as the ‘hub’ to enable co-ordination amongst the firms, even without any direct communication between the firms.
In 2015 the CMA investigated a cartel involving two companies, Trod Limited and GB Eye Limited, which were selling posters and frames through Amazon (see linked CMA Press release below). These firms used pricing algorithms, similar to those described above, to monitor and adjust their prices, ensuring that neither undercut the other. In this case, there was also an explicit agreement between the two firms to carry out this strategy.
What does this mean for competition policy?
Detecting collusion has always been a significant challenge for the competition authorities, especially when no formal agreement exists between firms. The adoption of algorithmic pricing adds another layer of complexity to detection of cartels and could raise questions about accountability when algorithms inadvertently facilitate collusion.
In the posters and frames case, the CMA was able to act because one of the firms involved reported the cartel itself. Authorities like the CMA depend heavily on the firms involved to ‘whistle blow’ and report cartel involvement. They incentivise firms to do this through leniency policies that can offer firms reduced penalties or even complete immunity if they provide evidence and co-operate with the investigation. For example, GB eye reported the cartel to the CMA and therefore, under the CMA’s leniency policy, was not fined.
But it’s not all doom and gloom for competition authorities. Developments in Artificial Intelligence could also open doors to improved detection tools, which may have come a long way since the discussion in a blog on this topic several years ago. Competition Authorities around the world are working diligently to expand their understanding of AI and develop effective regulations for these rapidly evolving markets.
Articles
Questions
- In what types of markets might it be more likely that artificial intelligence can facilitate collusion?
- How could AI pricing tools impact the factors that make collusion more or less sustainable in a market?
- What can competition authorities do to prevent AI-assisted collusion taking place?
Global long-term economic growth has slowed dramatically since the financial crisis of 2007–8. This can be illustrated by comparing the two 20-year periods 1988 to 2007 and 2009 to 2028 (where IMF forecasts are used for 2024 to 2028: see WEO Database under the Data link below). Over the two periods, average annual world growth fell from 3.8% to 3.1%. In advanced countries it fell from 2.9% to 1.6% and in developing countries from 4.8% to 4.3%. In the UK it fell from 2.4% to 1.2%, in the USA from 3.1% to 1.8% and in Japan from 1.9% to 0.5%.
In the UK, labour productivity growth in the production industries was 6.85% per annum from 1998 to 2006. If this growth rate had been maintained, productivity would have been 204% higher by the end of 2023 than it actually was. This is shown in the chart (click here for a PowerPoint).
The key driver of long-term economic growth is labour productivity, which can best be measured by real GDP per hour worked. This depends on three things: the amount of capital per worker, the productivity of this capital and the efficiency of workers themselves – the latter two giving total factor productivity (TFP). Productivity growth has slowed, and with it the long-term rate of economic growth.
If we are measuring growth in output per head of the population, as opposed to simple growth in output, then another important factor is the proportion of the population that works. With ageing populations, many countries are facing an increase in the proportion of people not working. In most countries, these demographic pressures are likely to increase.
A major determinant of long-term economic growth and productivity is investment. Investment has been badly affected by crises, such as the financial crisis and COVID, and by geopolitical tensions, such as the war in Ukraine and tensions between the USA and China and potential trade wars. It has also been adversely affected by government attempts to deal with rising debt caused by interventions following the financial crisis and COVID. The fiscal squeeze and, more recently higher interest rates, have dampened short-term growth and discouraged investment, thereby dampening long-term growth.
Another factor adversely affecting productivity has been a lower growth of allocative efficiency. Competition in many industries has declined as the rate of new firms entering and exiting markets has slowed. The result has been an increase in concentration and a growth in supernormal profits.
In the UK’s case, growth prospects have also been damaged by Brexit. According to Bank of England and OBR estimates, Brexit has reduced productivity by around 4% (see the blog: The costs of Brexit: a clearer picture). For many companies in the UK, Brexit has hugely increased the administrative burdens of trading with the EU. It has also reduced investment and led to a slower growth in the capital stock.
The UK’s poor productivity growth over many yeas is examined in the blog The UK’s poor productivity record.
Boosting productivity
So, how could productivity be increased and what policies could help the process?
Artificial intelligence. One important driver of productivity growth is technological advance. The rapid advance in AI and its adoption across much of industry is likely to have a dramatic effect on working practices and output. Estimates by the IMF suggest that some 40% of jobs globally and 60% in advanced countries could be affected – some replaced and others complemented and enhanced by AI. The opportunities for raising incomes are huge, but so too are the dangers of displacing workers and deepening inequality, as some higher-paid jobs are enhanced by AI, while many lower paid jobs are little affected and other jobs disappear.
AI is also likely to increase returns to capital. This may help to drive investment and further boost economic growth. However, the increased returns to capital are also likely to exacerbate inequality.
To guard against the growth of market power and its abuse, competition policies may need strengthening to ensure that the benefits of AI are widely spread and that new entrants are encouraged. Also training and retraining opportunities to allow workers to embrace AI and increase their mobility will need to be provided.
Training. And it is not just training in the use of AI that is important. Training generally is a key ingredient in encouraging productivity growth. In the UK, there has been a decline in investment in adult education and training, with a 70% reduction since the early 2000s in the number of adults undertaking publicly-funded training, and with average spending on training by employers decreasing by 27% per trainee since 2011. The Institute for Fiscal Studies identifies five main policy levers to address this: “public funding of qualifications and skills programmes, loans to learners, training subsidies, taxation of training and the regulation of training” (see link in articles below).
Competition. Another factor likely to enhance productivity is competition, both internationally and within countries. Removing trade restrictions could boost productivity growth; erecting barriers to protect inefficient domestic industry would reduce it.
Investment. Policies to encourage investment are also key to productivity growth. Private-sector investment can be encouraged by tax incentives. For example, in the UK the Annual Investment Allowance allows businesses to claim 100% of the cost of plant and machinery up to £1m in the year it is incurred. However, for tax relief to produce significant effects on investment, companies need to believe that the policy will stay and not be changed as economic circumstances or governments change.
Public-sector investment is also key. Good road and rail infrastructure and public transport are vital in encouraging private investment and labour mobility. And investment in health, education and training are a key part in encouraging the development of human capital. Many countries, the UK included, cut back on public-sector capital investment after the financial crisis and this has had a dampening effect on economic growth.
Regional policy. External economies of scale could be encouraged by setting up development areas in various regions. Particular industries could be attracted to specific areas, where local skilled workers, managerial expertise and shared infrastructure can benefit all the firms in the industry. These ‘agglomeration economies’ have been very limited in the UK compared with many other countries with much stronger regional economies.
Changing the aims and governance of firms. A change in corporate structure and governance could also help to drive investment and productivity. According to research by the think tank, Demos (see the B Lab UK article and the second report below), if legislation required companies to consider the social, economic and environmental impact of their business alongside profitability, this could have a dramatic effect on productivity. If businesses were required to be ‘purpose-led’, considering the interests of all their stakeholders, this supply-side reform could dramatically increase growth and well-being.
Such stakeholder-governed businesses currently outperform their peers with higher levels of investment, innovation, product development and output. They also have higher levels of staff engagement and satisfaction.
Articles
- World Must Prioritize Productivity Reforms to Revive Medium-Term Growth
IMF Blog, Nan Li and Diaa Noureldin (10/4/24)
- Why has productivity slowed down?
Oxford Martin School News, Ian Goldin, Pantelis Koutroumpis, François Lafond and Julian Winkler (18/3/24)
- How can the UK revive its ailing productivity?
Economics Observatory, Michelle Kilfoyle (14/3/24)
- With the UK creeping out of recession, here’s an economist’s brief guide to improving productivity
The Conversation, Nigel Driffield (13/3/24)
- UK economy nearly a third smaller thanks to ‘catastrophically bad’ productivity slowdown
City A.M., Chris Dorrell (12/3/24)
- Can AI help solve the UK’s public sector productivity puzzle?
City A.M., Chris Dorrell (11/3/24)
- AI Will Transform the Global Economy. Let’s Make Sure it Benefits Humanity
IMF Blog, Kristalina Georgieva (14/1/24)
- Productivity and Investment: Time to Manage the Project of Renewal
NIESR, Paul Fisher (12/3/24)
- Productivity trends using key national accounts indicators
Eurostat (15/3/24)
- New report says change to company law could add £149bn to the UK economy
B Lab UK (28/11/23)
- Investment in training and skills: Green Budget Chapter 9
Institute for Fiscal Studies, Imran Tahir (12/10/23)
Reports
Data
Questions
- Why has global productivity growth been lower since 2008 than before 2008?
- Why has the UK’s productivity growth been lower than many other advanced economies?
- How does the short-run macroeconomic environment affect long-term growth?
- Find out why Japan’s productivity growth has been so poor compared with other countries.
- What are likely to be the most effective means of increasing productivity growth?
- How may demand management policies affect the supply side of the economy?
- How may the adoption of an ESG framework by companies for setting objectives affect productivity growth?
High-tech firms, such as Google, Amazon, Meta and Apple, have increasingly been gaining the attention of competition authorities across the world, and not in a good way! Over the past few years, competition authorities in the UK, USA and Europe have all opened various cases against Apple, with particular focus on its App Store (see, for example, a blog post on this site from 2021 about the Epic v. Apple case in the USA).
The lead-up to the €1.8 billion fine issued by the European Commission (Europe’s competition regulator) on the 4th March 2024, began in 2019 when music streaming provider, Spotify, filed a complaint against Apple, after years of being bound by the ‘unfair’ App Store rules imposed by Apple.1
Apple’s App Store has traditionally served as the only platform through which application developers can distribute their apps to iOS users, and app developers have had no choice but to adhere to whatever rules are set by Apple. As iPhone and iPad users know, the App Store is the only way in which users can download apps to their iOS devices, establishing Apple’s App Store as a ‘gatekeeper’, as described in the European Commission’s (EC) press release expressing their initial concerns in April 2021.2 When it comes to music streaming apps, Apple not only serves as the exclusive platform for downloading these apps, but also has its own music streaming app, Apple Music, that competes with other music-streaming providers.
This means that Apple holds a dominant position in the market for the distribution of music streaming apps to iOS users through its App Store. Being a dominant firm is not necessarily a problem. However, firms which hold a dominant position do have a special responsibility not to abuse their position. The EC found that Apple was abusing its dominant position in this market, with particular concerns about the rules it imposed on music streaming app developers.
Apple requires that app developers use Apple’s own in-app purchase system. This means that users must make any in-app purchases or subscriptions to music streaming apps through Apple’s system, subsequently subjecting app developers to a 30% commission fee. The EC found that this often led app developers to pass on these costs to consumers through an increase in prices.
Although users could still purchase subscriptions outside of the app, which may be cheaper for users as these payments will not be subject to commission, the EC found that Apple limits the ability for app developers to inform users about these alternative methods. For example, Apple prevented app developers from including links within their apps to their websites, where users could purchase subscriptions. The implications of this extends beyond increased prices for consumers, potentially resulting in a degraded user experience as well.
These restrictions imposed by Apple are examples of what are known as ‘anti-steering provisions’, and it is this conduct that led the Commission to issue the fine for the abuse of a dominant market position.
Whilst this case has now been concluded, the spotlight is not off of Apple yet. The European Commission had required that all ‘gatekeepers’ must comply with their Digital Markets Act (DMA) by the 7 March 2024.3 One implication of this for Apple, is the requirement to allow third-party app stores on iOS devices.
Whilst Apple has agreed to this requirement, concerns have been raised about the accompanying measures which Apple will introduce. This includes varying terms for app developers based on whether or not they offer their app exclusively through Apple’s App Store. As outlined in a recent article,4 one implication is that app developers exceeding 1 million existing downloads through the Apple App Store will incur a fee of €0.50 per additional user if they opt to distribute their app also through a competing app store. This may act as a deterrent to popular app developers to offer their app through a competing store.
The success of a platform like an app store, relies greatly on generating ‘network effects’ – more users attract more developers, leading to more users, and so on. Therefore, not being able to offer some of the most popular apps would make it challenging for a new app store to compete effectively with Apple’s App Store.
Recently, Spotify, along with game developer Epic and others, have expressed various concerns about Apple’s compliance with the DMA in a letter to the EC.5 It will be interesting to see whether the EC is satisfied with Apple’s approach to comply with the requirements of the DMA.
References
- A Timeline: How we got here
Time to Play Fair (Spotify) (updated March 2024)
- Antitrust: Commission sends Statement of Objections to Apple on App Store rules for music streaming providers
EC Press Release (30/4/21)
- The Digital Markets Act
EC: Business, Economy, Euro DG
- Apple’s exclusionary app store scheme: An existential moment for the Digital Markets Act
VOXEU, Jacques Crémer, Paul Heidhues, Monika Schnitzer and Fiona Scott Morton (6/3/24)
- A Letter to the European Commission on Apple’s Lack of DMA Compliance
Time to Play Fair (Spotify) (1/3/24)
Articles
Questions
- Why might ‘anti-steering provisions’ that limit the ability of app developers to inform users of alternative purchasing methods be harmful to consumers?
- Why is the existence of Apple’s own music streaming service, Apple Music, particularly significant in the context of its role as the operator of the App Store?
- Reflect on the potential advantages and disadvantages of allowing third-party app stores on iOS devices, as mandated by the Digital Markets Act (DMA).
In a recent blog post on this site about the Microsoft/ Activision Blizzard merger, the European Commission had just reached a decision to approve the merger subject to remedies, but the investigations in the USA and UK were still ongoing. Since then, the merger has been approved by competition authorities around the world, including in the USA and UK, and thus the merger has gone through.
However, there were some differences in the way the case unfolded under the regulation of these three competition authorities.
The European Commission’s (EC) decision
The European Commission (EC) was the first to give the merger the green light. The EC’s in-depth investigation revealed concerns about the market for the distribution of games via cloud game streaming services. In particular, the concern was related to the possibility that Microsoft might make Activision’s games exclusive to its own cloud game streaming service (Game Pass Ultimate) and restrict access from competing cloud game streaming providers.
The EC argued that this in turn could strengthen Microsoft’s position in the market for PC operating systems, as Microsoft may have an incentive to limit or reduce the quality of the streaming of Activision’s games on PC’s which do not use the Windows operating system.
Thus, while the merger was approved, this was subject to remedies. These remedies included 10-year licensing commitments from Microsoft, as outlined in the EC’s press release:
These licenses will ensure that gamers that have purchased one or more Activision games on a PC or console store, or that have subscribed to a multi-game subscription service that includes Activision games, have the right to stream those games with any cloud game streaming service of their choice and play them on any device using any operating system.
This type of remedy is called a behavioural remedy and often requires the merging firms to commit to taking particular actions post-merger. Unlike structural remedies (which may for example, require the merging firms to sell off an entire business unit), behavioural remedies often require monitoring and enforcement by competition authorities. The EC argued that the deal, with these behavioural remedies, could strengthen competition in the market for cloud gaming.
The Federal Trade Commission’s (FTC) decision
The FTC, in the USA, had similar concerns to those of the EC related to the cloud gaming market. These were outlined in the FTC’s press release:
[The deal] would enable Microsoft to suppress competitors to its Xbox gaming consoles and its rapidly growing subscription content and cloud-gaming business.
The FTC also argued that when Microsoft had previously acquired gaming content, it had made this content exclusive to Microsoft consoles. This could result in higher prices, and reduced quality, choice and innovation. To this end, the FTC appealed in an attempt to block the deal, but the Court ruled in favour of the deal going ahead.
During this time, Microsoft announced that it had committed to keeping Call of Duty on Sony’s PlayStation after the merger, and this likely contributed towards the court’s decision. Hence, the FTC was unsuccessful in its attempt to halt the merger.
The Competition and Markets Authority’s (CMA) decision
The final hurdle remaining for Microsoft, was the CMA’s approval. As outlined in a previous blog post on this site, the CMA’s phase 2 investigation revealed similar concerns about the supply of cloud gaming services (amongst concerns related to the market for the supply of console gaming services, which were later dispelled), and whilst Microsoft offered some commitments similar to those accepted by the EC, the CMA did not deem these to be sufficient to address its concerns and thus prohibited the merger.
The CMA’s published remedies guidance suggests that the regulator has a preference for structural remedies over behavioural remedies. One of the reasons for this is because of the requirement to monitor and enforce the commitments, and this therefore formed part of the CMA’s reasons for not accepting the remedies. Unsurprisingly, Microsoft appealed this decision to the UK’s Competition Appeals Tribunal (CAT), probably partly driven by the fact that the EC accepted similar remedies to those rejected by the CMA. However, Microsoft and the CMA agreed that if the appeal was paused, Microsoft could propose a new deal.
The new deal: did the CMA make a U-turn?
In August 2023, Microsoft submitted a new restructured deal for the CMA to review. As described by the Chief Executive of the CMA, this deal was “substantially different from what was put on the table previously” and was therefore investigated as a separate merger case under the CMA’s phase 1 processes.
The new deal meant that Microsoft would no longer be purchasing the cloud streaming rights held by Activision. Instead, the cloud streaming rights would be sold to an independent third-party game publisher – Ubisoft. This means that Microsoft will not be in control of the cloud gaming rights for Activision’s gaming content (outside of the EEA), and therefore will not be able to restrict its competitors’ access to Activision’s games, which was one of the main concerns outlined by the CMA based on the initial merger proposal. The new deal also opens up the possibility that Activision’s games will be made available on cloud gaming services that run on a non-Windows operating system.
On 13 October, the CMA approved this deal, subject to the cloud gaming rights being sold to Ubisoft, and some subsequent commitments from Microsoft in relation to its relationship with Ubisoft post-merger, as outlined in the CMA’s final report. However, the Chief Executive of the CMA has emphasised that they are unhappy with the way that Microsoft dealt with negotiating the approval of the merger:
But businesses and their advisors should be in no doubt that the tactics employed by Microsoft are no way to engage with the CMA. Microsoft had the chance to restructure during our initial investigation but instead continued to insist on a package of measures that we told them simply wouldn’t work. Dragging out proceedings in this way only wastes time and money.
What’s next in big tech?
While the merger deal has now gone through, the FTC has recently re-opened its case against Microsoft, which will continue to unfold over the next couple of months until December when the case will appear in Court. This means it is possible that the FTC could attempt to undo the merger, though this would be challenging.
In the tech market more broadly, the CMA has recently launched a market investigation into cloud services. While the focus of this blog post was on cloud gaming, cloud services are now increasingly being used by many businesses. The CMA’s issues statement suggests that a key focus of its investigation will be on the ability for customers to switch between cloud service providers. Microsoft is one of the largest providers of cloud services in the UK, and therefore it is inevitable that it will be under scrutiny. Given all three regulators’ recent efforts to ‘crackdown’ on big tech, this is just one of a series of cases that will be interesting to see unfold.
Articles
Competition authorities documentation
Questions
- Discuss the effectiveness of behavioural remedies vs structural remedies for a merger.
- Why might the competition authorities have been concerned about the possibility of Microsoft making Activision’s games exclusive to its own cloud game streaming service? Is exclusive dealing always anti-competitive?
- Why was the transfer of the cloud game streaming rights to Ubisoft seen as a suitable remedy?