• Ashley Baker

The FTC Tries to Create its Own Virtual Reality

The Federal Trade Commission ignores consumers, endangers start-up investment while attempting to manage a market that does not exist.


Last month, the Federal Trade Commission sued Facebook parent Meta Platforms Inc. to prevent its acquisition of Within Limited, a start-up that makes the virtual reality fitness app Supernatural. According to the FTC, Meta’s purchase would allow it to dominate the “market for virtual reality dedicated fitness apps.”


If you’ve never heard of this market, you’re not alone: the FTC’s complaint represents the government’s latest efforts to construct a reality in which a tech company “monopolizes” an emerging market where there’s plenty of competition and innovation. If successful, the FTC’s suit is likely to stifle investment in a burgeoning new field and negatively impact start-up acquisitions more broadly.

Let’s start with some good news: the lawsuit shows that there is no need for Congress to rewrite the antitrust laws. The FTC believes that Meta’s purchase will harm innovation and ultimately consumers. An independent court of law, rather than politicians or bureaucrats, will evaluate the evidence objectively. This is how antitrust law should work and has worked for decades. Amidst pending bills that would tip the scales for the government, the suit is a good reminder that regulators can already challenge practices that may raise competitive concerns. Moreover, the FTC has been accused of gaming judicial processes through its own administrative tribunal to deny defendants their day in court. At least this lawsuit was filed in federal district court.

Unfortunately, that is the suit’s only positive because there is simply no risk that Meta is causing competitive harm or that the company is monopolizing this hypothetical future market. In other lawsuits against tech companies, including Meta and Google, the government has attempted to gerrymander market definitions to bolster its claim that the tech company has some sort of “monopoly,” even when it’s clear that consumers have countless other choices to get what they want.

Likewise, here, a “market for virtual reality dedicated fitness apps” may exist somewhere on an Oculus headset -- but nowhere else. In actual reality, consumers have a slew of other fitness options, including home exercise equipment, online videos, fitness programs run through other platforms such as PlayStation, Nintendo, and Xbox, workout DVDs, gyms, pools, or just running outside. Many of these options are free or involve no monthly fee.

The FTC’s theory of monopolization is a bit of a stretch, to say the least. As the Wall Street Journal editorial board recently pointed out:

“But how can the acquisition reduce competition when Meta doesn’t own any fitness apps, and Supernatural has plenty of competitors even by the FTC’s admission? According to the suit, Meta’s music and rhythm app Beat Saber competes with Supernatural because they both involve people moving around in space and burning calories. Seriously?”

The FTC’s complaint then merely speculates that the purchase might reduce investment while ignoring the very real benefits to consumers. The complaint hazards that Meta’s acquisition could reduce potential future competition because, without the purchase, Meta might have developed a competing app. The FTC postulates that, with the purchase, Meta will simply offer consumers the new app as is and stop innovating. The FTC never alleges that Meta’s purchase will hurt consumers in any concrete or meaningful way, such as higher prices, fewer choices, or less investment and innovation.

Has anyone at the FTC ever worked in the private sector, looked at the stock market, or paid attention to the news? Maybe not. As Trump economic advisor Steve Moore noted, a recent report by the Committee to Unleash Prosperity found that a majority of Biden Administration appointees have zero years of business experience.

Meanwhile, in the U.S. and around the world tech companies are clawing at each other tooth and nail to develop better products, to compete for eyeballs, and to become leaders in virtual reality, a technology that’s still in the very early stages of trying to prove itself. After a tech company acquires a startup, it then uses its resources to scale and to improve the startup’s products through its own expertise and resources and to incorporate the startup’s technology into its other offerings.

This process allows more consumers to receive better products more quickly – examples include Forethought (acquired by Microsoft and developed into PowerPoint) and YouTube (acquired and scaled by Google). This process also provides financing for new companies, critical to the startup ecosystem. If an acquiring company fails to improve and to build upon its acquisition, the acquisition will become worthless in short order.

Meta has chosen to compete in the fitness space in part by purchasing Within Limited. Who is the FTC to second-guess Meta’s competitive choice? Although a big company, Meta has no market power in virtual reality, no market power in the fitness market generally, no ability to exclude competitors, and no ability to raise prices to supra-competitive levels. In the face of falling revenues and stock price, Meta is making strategic investments to develop new products to remain relevant to consumers. If Meta ceases to innovate, or makes a bad bet, it will suffer the consequences in the marketplace far faster than any remedy a court could impose.

The FTC’s lawsuit attacks innovation and investment and would place the government in the role of second-guessing routine business decisions where no one has any market power. That’s not good for consumers – in this or any other reality.

 

Ashley Baker is the director of public policy at the Committee for Justice, a nonprofit legal and policy organization that advocates for the rule of law and constitutionally limited government and is a leading voice on judicial nominations. She is also the founder of the Alliance on Antitrust coalition. Twitter: @andashleysays