Consumption is the sole end and purpose of all production; and the interest of the producer ought to be attended to only so far as it may be necessary for promoting that of the consumer.
Smith’s insight that an economy’s purpose is to serve consumers seems self-evident—but not to today’s Federal Trade Commission (FTC). In three antitrust cases and a change in policy direction, the agency seems to be losing interest in consumers’ preferences.
In the cases, the FTC appears to be decreasing its reliance on consumers’ choices in its decisions on whether a firm has market power. Generally, the FTC and the Department of Justice look to consumers for guidance on whether a business could exploit them. More specifically, when the agencies have been suspicious that a firm possesses market power, they study whether consumers would switch to a rival product if the firm in question were to act like a monopolist. Real consumer behavior, not regulator imagination, has driven decisions.
The FTC apparently is moving away from this consumer-centric approach. In the three antitrust cases, the agency has discounted what customers really do and has argued that a firm faces competition only if rivals’ products have technical and pricing specifications that are nearly identical to those of the investigated firm. This is like saying that Mercedes and Tesla are not in competition because each carmaker’s engineering is unique.
The first case began in January 2021 and was amended in August 2021 because a federal judge dismissed the initial complaint. In this case, the FTC defined Facebook’s business as personal social networking (PSN) services. The FTC defined PSNs in narrow, mechanical terms, as social media platforms that include a social graph that maps connections between users, friends, family, and others; features such as a one-to-many broadcast function for sharing personal updates, interests, photos, news, and videos; and features that allow users to find others. This meant that only Snapchat, Instagram, and Facebook qualified as PSNs, which must have been a shock to TikTok. I wrote further about this case here and here.
Then in July 2022, the FTC asked the US District Court in San Francisco to block Meta’s proposed acquisition of Within Unlimited, the maker of the popular virtual reality (VR) fitness app Supernatural. The FTC argued that Within Unlimited faces almost no competition. In the FTC’s mind, a product had to be VR, dedicated to fitness, and subscription-based to compete with Supernatural. According to the FTC, this ruled out “digitally connected exercise bikes, treadmills, weight machines, mobile phone apps, video games, or workout videos.” Evidently, the FTC believes that users of Supernatural would not exercise without the product because, well, there is no substitute for Supernatural. The judge threw out the case on February 1, 2023, but accepted the FTC’s market definition. I have written more on this case here.
In December 2022, the FTC issued a complaint to block Microsoft’s proposed acquisition of Activision Blizzard, the maker of popular, high-end video games. In this case, the FTC chose narrow technical and pricing standards and assumed that these are must-haves for consumers. For example, the FTC decided that a game provider is in competition with Activision only if the rival offers “unlimited access to a library of video games that are predominantly played on non-mobile devices and are available to play at zero additional cost beyond the subscription fee” and “non-mobile video games via cloud streaming.” Also in the FTC’s mind, Microsoft’s Xbox Series X|S and Sony’s PS5 gaming consoles face no competition from Nintendo, PCs, and other game access options because the Xbox and PS5 options are faster. Evidently, the FTC believes that Activision gamers could not be enticed by a game with a different price structure.
In addition to dismissing consumers’ views on products, the agency is abandoning the well-established principle that antitrust should be about consumer welfare and is returning to a failed ideology that large businesses are inherently bad. In reality, most businesses that grow large do so because large numbers of consumers choose to buy from them. The agency seems to be deliberately ignoring what consumers want in the economy.
The FTC needs to understand that competition is about customers deciding which products are valuable and which businesses do the best jobs of providing them. Perhaps then we can get back to addressing real market power problems.
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