Non-story: are Valve and Microsoft breaching competition law? (Answer: No)

There’s been a lot of commentary about competition law (or antitrust law, as it’s known in the USA) and the games industry over the last week or so, focusing in particular on Valve and Microsoft.  This is a post to explain why that’s a non-story. 

First, a number of people drew my attention to a series of consumer complaints about Valve’s Steam digital distribution platforms.  These complaints ranged from pointing to price differentials between US/European and different European countries’ pricing of games (see for example here), to complaints about specific games being withheld or delayed from release in particular countries.  I was asked about whether this is anti-competitive.

Then Eurogamer and other sites like Edge ran a story about Microsoft’s allegedly restrictive content and release policy.  Basically, they argued that Microsoft is trying to control how its developer partners can release their games, particularly on other consoles/platforms.  Sony subsequently hit out at Microsoft over this (more here).  Again, various people began commenting about whether Microsoft is engaged in anti-competitive activity.

Answer: sorry, these are non-stories.  Competition regulators are unlikely to get involved here.  To explain why, a (European) competition law #101 follows.


Competition law #101:

EU competition law exists to ensure a level playing field between competing businesses.  It isn’t there to ensure the consumer always gets the best deal (ideally that’s the conclusion of a good competition law system, but it’s not guaranteed).  In legal terms, the EU focuses primarily on regulating: (1) agreements between businesses in the EU which harm competition in the EU (e.g. companies colluding together to fix prices artificially high); and (2) a business in the EU which is in a dominant market position abusing that position (e.g. a market leading business dictating how consumers in different EU countries can purchase products for its own benefit).  Critically, there are complicated tests to establish if/when a business falls under these kinds of regulation (which is why knee-jerk yes/no answers don’t really help).

Separately, we have consumer protection law, which regulates how businesses behave more generally towards consumers.  For example, consumer protection law requires that a game actually works and broadly speaking that it matches the pre-purchase promises made about it.  However, there are real legal uncertainties about how they apply to digital – the current laws are designed to protect physical goods and services, not intangible digital content.  While over time this will get clarified (the UK government is looking into it at the moment, for example), it means you can’t really make comments of the ‘X or Y is definitely illegal’ without looking into it closely and potentially having a legal dispute over it.

Oh, and there’s little point comparing the US and European approaches to these matters- they are entirely different legal systems.  An argument along the lines of “X costs Y in the US but Z in Europe” generally won’t get a consumer very far, therefore.

Conclusions:Applying these principles to the examples highlighted above, I arrive at the following conclusions:
(1) Re Valve: competition regulators would need to be satisfied first that it is in a position of market dominance and secondly that is is abusing that position OR (depending on the circumstances) that it is colluding with its rivals.  The simple fact that there are price differentials for the same product between different EU countries doesn’t necessarily raise competition law issues (either of abuse of a dominant position or of price collusion).  You wouldn’t expect milk to be exactly the same price over the whole EU, for example.  Even with digital content, there may be legitimate reasons to have price differentials – it might just cost more to release a game digitally in one country than in another, for example.  If however a price differential comes as a result of collusion between games businesses or due to a games business which is in a dominant market position abusing that position, then potentially this could raise competition law concerns.  We’d only know for definite if the EU was to investigate a digital content platform.  So far, there are few precedents: the EU began investigating Apple over iTunes pricing differentials in the EU a few years ago, but Apple agreed voluntarily to change its pricing structure before the investigation reached any conclusion.  As for restrictions regarding the release of a game in a particular jurisdiction: again, for a competition regulator it would need to be tied to some sort of collusion or abuse of a dominant position.  Last point on this: I’m a committed Steam consumer and I sometimes puzzle at decisions regarding the timing/pricing etc of games on Steam in the UK – but it’s not necessarily against the law just because consumers don’t get what they want all the time.

(2) Re Microsoft:  it seems generally acknowledged that none of the three main console manufacturers are in a dominant market position and therefore the terms on which they agree to make games available on their consoles seem unlikely to be a matter for competition regulators. It’s also worth bearing in mind that it’s fairly standard for all the console manufacturers to have some form of restrictions regarding their developer partners’ relationships with rival console manufacturers (though the level of those restrictions may change from time to time).NOTE: this is the second post I’ve written recently to explain why particular developments in the games industry are legal non-stories (the other is here).  Let me know in the comments below or via Twitter if you like these kinds of posts and, if so, I’ll try writing them more regularly.

21 comments

  1. There are a couple of things about Valve's prices that you haven't covered, Jas.

    1) EU law makes price discrimination illegal. As I understand it, the only reason Valve get away with their greatly inflated Euro prices is because their company and billing servers are located outside the EU.

    2) It's a well-known secret that Steam's prices (and those of other digital stores too) are kept artificially high by retailers who threaten to not sell boxed games if they are undercut online. I'm not sure if this would count as a cartel, but it's always seemed very dodgy to me.

  2. Yes, this is very interesting to read, please do write this sort of thing more regularly!

    Also, as in Artfunkel's point 2 above, there were lots of rumours about Game forcing publishers to release games late on Steam in the UK, on threat of not selling their games in Game stores.

    Does this break any laws? I can see the argument that Game doesn't have a dominant market position.

    Note: It may not have been Game (they publicly denied all rumours), but they were the target of most of the rumours. I can't see that any games retail company has a dominant position in the UK anyway.

  3. Per your note, I enjoy reading these posts about non-stories. It's nice to get an unsensationalized take on a current topic in the industry.

    Keep them coming!

  4. "While over time this will get clarified (the UK government is looking into it at the moment, for example), it means you can't really make comments of the 'X or Y is definitely illegal' without looking into it closely and potentially having a legal dispute over it."

    Ah, but the same holds true vice versa: Declaring it legal without a court case is just as well going out on a limb. In the end, the legal experts whose opinion counts are the judges involved in such a court case.

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