Monopoly power in the gaming market

Last week saw Microsoft’s bid to takeover Activation Blizzard blocked by the UK competition authorities. Activation Blizzard is the company that markets some of the world’s most popular computer games such as Call of Duty, World of Warcraft, Guitar Hero and Skylanders.  The deal worth around $70 billion would be the biggest in the gaming sector's history. 

Microsoft sees Activation as a way of developing its presence in the lucrative gaming market. Activation’s catalogue of games along with its domination of e-sports makes it an incredibly valuable asset but it is the business’s ability to develop new and existing games that makes it so attractive to Microsoft. Activation currently has three studios working on new versions of Call of Duty which has 250 million players worldwide. 

The acquisition of Activation by Microsoft is called a vertical merger because Microsoft is buying Activation as a supplier (Call of Duty is played on Microsoft’s Xbox). One of the UK competition authority's concerns about the takeover is that Microsoft could restrict access to Activation’s games to other companies in the games consul market. Sony has raised the issue of gaining future access to Call of Duty for its PlayStation consul. Microsoft has promised not to do this and any gain for Microsoft of restricting access would be at the cost of lost sales of games like Call of Duty. 

A bigger concern for the UK competition authorities is the control Microsoft would gain over the cloud gaming market. This is a relatively new market in gaming where users can play on smartphones or TVs without the need for access to a consul. The combination of Microsoft’s financial resources and Activation’s brand strength in gaming would make it very difficult for firms to enter the cloud gaming market and give Microsoft significant monopoly power. 

Microsoft and Activation Blizzard are both highly critical of the UK competition authority's decision to stop the takeover. They feel the investment and innovation benefits of the takeover will bring significant benefits to the UK gaming market and the tech sector of the UK economy.

Possible points to discuss with a class

1. Describe the markets Microsoft and Activation Blizzard operate in.

2. How would Microsoft's takeover of Activation Blizzard lead to monopoly power?

3. Why might Microsoft's takeover of Activation Blizzard be bad for consumers?

4. Why might Microsoft's takeover of Activation Blizzard be good for consumers?