Microsoft’s proposed acquisition of Activision Blizzard could well close in the next month because the regulatory process is ending. In this case, the European Commission has shown even more creativity than the newly-energized U.S. Federal Trade Commission (FTC), approving the transaction in May with some structural consumer protection provisions that are likely to be amplified by the United Kingdom’s Competition and Markets Authority. (Fun fact, an economics dissertation in 2012 argued the merger made sense.)

European Union (EU) and UK authorities basically require the proposed merged company to ensure equal access for consumers and improve consumers’ experience. According to these two European regulators, the merger is allowed only if Microsoft helps consumers. To satisfy the UK, Microsoft is divesting the cloud licensing business of Activision Blizzard to Ubisoft. This apparently addresses the antitrust agency’s demands that consumers get more choice and better outcomes under the merger.

The FTC should act now to be part of the global merger settlement that protects consumer, community, and worker interests.

But, I worry. My concern is that the FTC (and progressive pro-consumer and antitrust economists) will stick to old-fashioned frameworks that assume enforcing smallness equates to enhancing competition. A “break ‘em up no matter what” stance would miss the opportunity to get the best of what well-regulated large firms have to offer. Also, the “small is always beautiful” approach to antitrust defies modern labor and industrial economics research. This modern research highlights that real-world markets—even those with many players operating in a given market—allow for significant exercise of market power, particularly employers’ power over wage-setting for employees.

The Microsoft-Activision merger will help consumers

Though it is counterintuitive, in this case, a merger making a company bigger will help increase competition in the video game industry because regulators are demanding conduct changes that will make Activision Blizzard’s games available on more platforms.

Pressure from FTC commissioners and legal action by the European Commission extracted from Microsoft an agreement to not withhold Activision video games from other game consoles and streaming services. After the merger, additional cloud gaming services will be available and consumers will have access to Activision titles, such as Call of Duty, which will significantly benefit consumers.

Under the European terms of the merger, Microsoft will be doing more to ensure that its games are available on multiple platforms than both Activision Blizzard and its chief competitor, Sony. Sony blocks U.S.-based competitors from competing in Japan’s gaming market.

The bug-a-boo in these pro-consumer sounding constraints is that the FTC might not have the resources to enforce the agreement by the now more-powerful corporation.

The FTC needs more enforcement money in a larger and more complicated economy. But in this case, despite their broader budget constraints, the FTC has before it a credible mechanism to ensure the agreement allowing the merger contains enforceable contracts to ensure the promised conduct is upheld.

The merger improving working conditions helps consumers

The FTC should also want to approve the merger because Microsoft has done what had never been done before. The tech company has agreed not to illegally and aggressively prevent their employees from joining a union. Microsoft entered into a neutrality agreement with the Communications Workers of America (CWA) for Activision Blizzard that promises to make the path to unionization in the video game development industry much smoother if the merger is approved and the deal goes through.

The union neutrality agreement was necessary because an even larger merged company can have undue influence on the workforce. Its dominance, or monopsony power, could tempt the company to pursue profits by restricting supply and underpaying workers. The merger was a concern because Microsoft’s proposed partner, Activision Blizzard, had been involved with unionbusting. In light of the FTC’s current attention to labor market impacts, Microsoft wanted to establish it would not condone or escalate its new partner’s anti-worker activity.

Allowing mergers with companies that uphold “union neutrality” agreements may lead to collective bargaining which would practically guarantee compensation and labor conditions improving because the union naturally and continually puts a check on corporate power. And, for the FTC’s purposes, the nifty thing about a union is that enforcement and the check on corporate power is persistent and costless for the U.S. taxpayer.

How does a union at a large company help consumers? The key is that unionization that leads to higher wages does not lead to an increase in prices when the union is eliminating monopsony exploitation in the labor market. Here’s how it plays out:

• Step one: The union forces the company off the exploitation path to making profits by negotiating and enforcing higher wages. The company takes a different profit path and expands output to raise revenues.
• Step two: Expanding output can take the form of simply more product, which lowers prices, or improved products. What is good for workers is good for the greater community.

A major modern FTC

The probable FTC approval of the Microsoft-Activision Blizzard merger signifies a new era for the FTC using modern economic research.

The Biden administration’s FTC has made progress updating its ambit by applying modern methods to their core principle in assessing the legality of corporate mergers. Instead of using narrow market concerns and measures, the FTC is bringing empirically grounded economic criteria to assess whether a merger supports economic prosperity for consumers, workers, and society. Instead of focusing solely on outcomes for consumers, the FTC has updated its approach with modern economic research on labor markets.

Teresa Ghilarducci is a labor economist and nationally recognized expert in retirement security. She serves as the Bernard and Irene Schwartz Chair of Economic Policy Analysis at the New School for Social Research and director of the Retirement Equity Lab (ReLab).