No, Microsoft’s Recent Changes Do Not Prove the Activision Deal Was Anticompetitive

Lina Khan is reportedly having the “last laugh” about the Microsoft/Activision deal, which she attempted to block as chairwoman of the Federal Trade Commission (FTC) during the Biden administration. Due to some recent changes at the company, including layoffs and a rise in the price of Game Pass Ultimate, the elite tier of Microsoft’s gaming subscription service, Khan has claimed that the company is now “too big to care,” implying that the deal should have been stopped according to her wishes. But there are many problems with jumping to a post hoc ergo propter hoc conclusion that these changes were caused by the Activision deal. In fact, the changes that Khan highlights do not appear to have been caused by the foreclosure concerns that motivated the attempt to block the deal.

First, Khan’s suggestion that the deal is contributing to “increasing consolidation” is extremely misleading. This wasn’t a horizontal merger between two competitors that produce substitute goods, but a vertical deal between two firms combining complementary assets. Furthermore, the motivation for the acquisition was to better compete with rival Sony, which Microsoft has trailed for decades and which still has the largest market share in the global console market. What’s more, dynamic forces at work that are significantly constraining market power: Notably, mobile gaming continues to overtake regular console gaming in total sales by a large margin, with almost double the revenue of consoles in 2024.

Moreover, the price increase for Game Pass Ultimate—from $19.99 per month to $29.99 per month—does not show that the deal was anticompetitive. Before the October 1 change, Game Pass had three tiers for consoles called “Core,” “Standard,” and “Ultimate.” After October 1, the three tiers remain, but the first two are now called “Essential” and “Premium” and have not experienced any price increase. Rather, Microsoft has upgraded its offerings available across the different tiers of Game Pass subscriptions. Indeed, as mentioned in a recent Stratechery article, “Game Pass Premium will be priced at the same $14.99 monthly price of the existing Standard subscription, but it will now have a bigger library of games to choose from.” Similarly, Ultimate is experiencing a number of upgrades, including “day-one” access to new releases of major titles, automatic access to Fortnite Crew and Ubisoft Plus, and enhanced cloud gaming quality. On a quality-adjusted basis, therefore, the real price of the subscription has not risen as much as the nominal figure may suggest.

Even if quality-adjusted prices did increase, there is no evidence it is due to foreclosure, which was the central theory of harm in the FTC’s case to block the deal. Specifically, the Khan FTC’s entire complaint rested on the claim that Microsoft would be able to increase prices by foreclosing key inputs, particularly the Call of Duty franchise, to console rivals like Sony. But rather than foreclose Sony, Microsoft has an agreement with the company not to do so, and Call of Duty remains available to other major players, such as Nintendo—a condition for approval of the deal in the European Union.

Interestingly, rather than divert sales from Sony to Microsoft, as foreclosure theory would predict, precisely the opposite appears to have occurred. That is, including super hit titles like Call of Duty: Black Ops 6 in Game Pass Ultimate increased subscriptions only modestly when compared to the estimated $300 million in standalone sales of the game that Microsoft lost out on. At the same time, Sony sold 82 percent of the standalone purchases of the game, which remained the most popular title in 2024 (interestingly, Sony hasn’t offered the title on its competing subscription service, PS Plus).

Finally, although Khan has expressed concern about recent layoffs at the company, tech sector layoffs, as documented by Crunchbase, have been a secular economic trend and other companies have laid off more employees than Microsoft in recent years. This trend is likely due to a host of exogenous factors, such as tariffs and overstaffing during the surge in demand for tech company services that followed the COVID-19 pandemic. As such, it is overreaching at best to suggest that any meaningful number of layoffs in Microsoft’s gaming division are due to the acquisition. Moreover, sympathy for those who lose their jobs notwithstanding, it is important to note that reducing headcount alone is not a cognizable antitrust harm. In many cases, it reduces costs, increases efficiency, and benefits consumers.

At bottom, the Microsoft/Activision deal was driven by vigorous competition in a dynamic market that requires major investments to maintain the continuously improving gaming experiences that consumers have come to expect. The vertical combination of complementary assets is an important way that firms can achieve these capabilities when markets are dynamic and competition evolves quickly. As Microsoft’s struggle to challenge the largest incumbents in this space shows, this is easier said than done. Lina Khan has been too eager to suggest that she knew recent changes at Microsoft would occur after the deal and that her concerns about the deal have been vindicated. Rather, it’s more likely that the case was brought due to Khan’s long-standing animus toward American tech companies than to any deep insights about what would happen to the price of Game Pass or employment at Microsoft.