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Virtual Reality Is an Increasingly Competitive Market, Despite the FTC’s Concerns

Virtual Reality Is an Increasingly Competitive Market, Despite the FTC’s Concerns

February 24, 2023

The Federal Trade Commission (FTC) has scrutinized the virtual reality (VR) market over the past year and a half, citing concerns about market concentration and lack of competition that harms consumers. Those concerns are unfounded. In fact, competition in the VR space is ramping up as companies continue to adapt to market trends and new players enter the market.

The first indications of the regulatory scrutiny came in January 2022, when Bloomberg reported that the FTC and multiple states had launched an investigation against Meta for alleged anticompetitive behavior in the pricing strategy for its Quest devices. The FTC then filed a complaint on July 29 seeking to block Meta’s acquisition of Within Unlimited, a gaming company known for its VR fitness app, Supernatural, despite FTC staff recommending against bringing a case. The FTC cited Meta’s market share in the VR market as one of the reasons to block the acquisition, Meta’s Quest 2 headset constituted 78 percent of the VR devices shipped in 2021—and before becoming FTC chair, Lina Khan argued that regulators should block Meta from making any future acquisitions.

But a federal judge recently declined the FTC’s injunction against the acquisition, allowing the merger to go through. Significantly, the court rejected the argument that Within was a potential future competitor of Meta, signaling skepticism of a creative new theory of potential harm that FTC leadership had put forward. Wisely, the FTC recognized it had lost the fight and decided to give up.

Meanwhile, a host of new players have entered the VR market in the past six months. HTC has introduced the XR Elite headset to compete with Meta’s high-end Quest Pro model. Pico, a VR manufacturer ByteDance acquired in 2021, launched its Pico 4 headset to compete with Meta’s more value-oriented Quest 2, and despite launching in only 12 European countries plus Japan and South Korea, it has already claimed between 2 and 3 percent market share. And Sony is now launching its PlayStation VR 2 headset with over 30 games to start, and more to come. Sony’s extensive library of popular video games will likely hold substantial appeal to gamers.

Meta will also face fierce competition from other “Big Tech” companies. Apple is reportedly close to releasing a new mixed-reality headset that will compete in the high-end space. Additionally, Samsung, Google, and Qualcomm recently announced a partnership to launch a mixed-reality device.

These are signs of a highly dynamic market, not an uncompetitive one. Companies are flocking into an emerging field, attempting to lure consumers to their platforms with competitive prices, new features, and engaging content. Assessing competition in a rapidly changing market such as the VR market thus requires a long-term, evolutionary perspective, not the static model that has led the FTC to conclude incorrectly that innovative first movers like Meta enjoy unassailable positions of perpetual market power. Policymakers worried about a potential lack of competition in the VR market have little to fear for now.

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