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LGJ: The Anti-Trust Game


Each week Mark Methenitis contributes Law of the Game on Joystiq ("LGJ"), a column on legal issues as they relate to video games:

I've mentioned before that both in the latter years of the previous administration and under the new administration, certain kinds of enforcement actions were increasing in number. Past commentaries in LGJ have focused on trade, but another one of those areas is anti-trust. What got my attention in this regard was a conversation I had the other day with a partner in the firm who has dealt with a number of anti-trust issues. We were discussing the game industry, and he asked what the price range was on games these days. My response was a range, with the caveat that for pretty much all new PS3 and Xbox 360 games, the price was $60. His thought was that had to be on someone's radar screen to investigate, even if there's no actual anti-trust violation going on.

Given the investigative climate, I would tend to agree, though based on what I know in the industry, I don't think there's any actual collusion going on. Instead, we likely have a case of 'conscious parallelism,' which isn't illegal per se, though a government official looking for their "big break" might just take on this case hoping to see a shift in the law from the higher courts. I'm getting well ahead of myself, though, since a better background in anti-trust needs to be set out before getting into the specifics.

The basics of anti-trust are rooted in economic theory, but I'll try to keep them brief. In general, monopolies and restraints on trade prevent the market from operating efficiently. Again, in general, a market not operating efficiently is harmful to the consumer. This is what gives rise to anti-trust law in the US, in the broadest sense. I've written about one aspect of anti-trust before, that is government control over mergers. In theory, this is to prevent the formation of monopolies through market consolidation. This is what we saw with the proposed EA - Take-Two merger. The other side of the anti-trust coin, and the main focus of this article, is the concept of "restraint of trade."

Restraint of trade, often referred to with the less pleasant term collusion, refers to a whole series of kinds of actions that theoretically prevent the free market from working. Some of these include vertical and horizontal price fixing, bid rigging, the formation of cartels, dumping, refusal to deal, dividing territories, and tying. In short, it prevents the price from being optimal because of some sort of agreement between the players in the market, much like a monopoly could single-handedly set the price higher than the point of equilibrium.

What would most likely be looked at in the game industry context would be horizontal price fixing. Horizontal price fixing is where companies who produce the same or similar products agree to a set price for the good (generally as high as the market will bear), and it is illegal per se in the United States.

From an outsider's perspective, the home console game market would certainly raise eyebrows in this respect. After all, the overwhelming majority of disk-based games are priced exactly the same on each console, and even across consoles. The entire previous generation priced new games at $49.99, and the current generation has kept or raised that price point to $59.99. There's far greater differentiation on other platforms, be that the PC or the Apple App Store or even the DS, which sees a pretty fair variety of releases between $19.99 and $39.99. In fact, even the PSN, WiiWare, and Xbox Live Arcade titles see more price differentiation than their disk-based cousins. The standardization of pricing across publishers and developers on the platform is itself the red flag.

What would make this illegal, though, would be any sort of agreements between the publishers to hold those prices. While it's certainly not impossible that such agreements exist, I find it highly doubtful. However, that's not to say that two other examinations of the industry might have slightly better footing for an anti-trust complaint. First, the very act of sharing price information can be imputed to be an anti-trust violation. Of course, with the market as it is, it's not as though price information is a well kept secret. The second, and potentially more problematic, is that given the relatively small number of publishers and their position in the supply chain, the fact that they deal with multiple developers, including subsidiaries of themselves and outside companies, and can actively control the prices of those releases might be seen as a restraint of trade. If EA suddenly said that every game they published would be priced at $69.99, they would be fixing prices for other developer's goods they publish, though the fact that other publishers are available suggests that the market forces could still work. Given the illegal per se nature of price fixing, though, it would be an interesting question, though one I don't think the government could succcessfully pursue.

I find it most likely that the game industry is a excellent model of conscious parallelism or price leadership. Both of those require an oligopoly, which the game industry is almost certainly on the hardware production and software publication side. In short, the theory is that one of the players opts to use or raise a price, and the other major players follow suit. There's no agreement between the parties, and no illegal price sharing. It's just the dynamic of responsive pricing in an industry with few players. The move from the last console generation to this one is a perfect example. As I recall, before the launch of the Xbox 360, word came out that one developer/published was raising their price on "next-gen" console titles to $59.99. Within a few weeks, pricing began to appear for many launch titles, and many of them were also $59.99. One party made a move, and others follow suit.

Of course, a simple explanation like that doesn't preclude government investigations and lawsuits. It's my opinion that potential risks like these be brought to light rather than ignored as "too implausible." Just because the government isn't successful in an anti-trust action doesn't mean the company incurs no expense or massive loss of time in defending it. Ask American Airlines, and I'm sure they'd be glad to tell you all about it. In fact, this is a road Microsoft has unfortunately been down before as well, but I'm sure most people remember that case. All that stands between us and the great video game anti-trust case of 2009 is the lack of a government official looking to make a name for themselves who wants to take this as their personal crusade.

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Mark Methenitis is the Editor in Chief of the Law of the Game blog, which discusses legal issues in video games. Mr. Methenitis is also a licensed attorney in the state of Texas with Munck Carter, LLP, and a member of the Texas Bar Assoc., American Bar Assoc., and the International Game Developers Assoc., where he is a board member of the Dallas chapter. Opinions expressed in this column are his own. Reach him at: lawofthegame [AAT] gmail [DAWT] com.

The content of this blog article is not legal advice. It only constitutes commentary on legal issues, and is for educational and informational purposes only. Reading this blog, replying to its posts, or any other interaction on this site does not create an attorney-client privilege between you and the author. The opinions expressed on this site are not the opinions of AOL LLC., Weblogs, Inc.,, or Munck Carter, LLP. As with any legal issue that may confront you in a particular situation, you should always consult a qualified attorney familiar with the laws in your state.

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