I am working on the antitrust case against Steam
Hi all! It's your resident antitrust economist chiming in. I've recently been working on antitrust litigation / research involving the Steam Game Store, and I thought I'd post a little summary here for those that might be interested. Essentially all information in this article is public, except my ramblings.
To give a little background about myself I am (now) a Director level economist working at an economic consulting firm. As an economic consultant I work primarily in antitrust, IP, financial valuation, and forecasting. Basically, when big company do the monopolization, law firm hire people like me to help write the case, then they have a slap fight in front of the judge using my papers.
The intention of this post is to both cover the specific accusations / conduct of the Steam platform, but also to cover a broader view of electronic platform antitrust, and how it affects you (the reader). I think it's useful and interesting to consider how we got here, and where we're going.
TLDR: Steam is doing stuff that a lot of tech monopolies are doing to maintain their monopolies, and we should want that sort of behavior banned because of like society and stuff.
I previously posted a cliffnotes summary of the cases against Apple and Google.
What is Antitrust?
In general, US law presumes on some level that competition between multiple firms produces an external benefit to society. This is well supported in empirical literature, and also might make sense intuitively. You want at least two big companies constantly trying to win consumers, because they discipline each others’ behavior.
Therefore, US law attempts to encourage competition to some degree. One of the many mechanisms for this enforcement is the Sherman Act, which generally attempts to prevent "unreasonable restraints on trade".
It is important to note that having a monopoly is not illegal. Maintaining a monopoly by unreasonably restraining trade is illegal. Antitrust cases are generally arguments surrounding whether or not a particular conduct unreasonably restrains trade. The plaintiff wants to prove competitive harm and the defendant wants to show that such harm does not exist.
Antitrust History - Robert Bork, he say: "Corporations are Trustworthy Actually"
A long time ago in a faraway place called the 1980s, a legal thinker called Robert Bork (and to be fair a much broader academic movement) was part of a huge shift in thinking around antitrust. Originally, antitrust was relatively broad and focused on competitors. Essentially, many laws were concerned with maintaining competitors directly, rather than measuring outcomes.
Bork took an opposing view. He and others argued that the focus on competition or competitors was counterproductive. Rather, antitrust litigation should be narrow and focus on price impacts, measuring whether things got more expensive for the end consumer.
To give a somewhat reductive summary, Bork’s view was essentially that markets were generally efficient and self-correcting. Under his watch, corporations have tended to enjoy a presumption that they were generating societal value. This presumption, in many cases, could only be overcome by indisputable proof that they were causing short-term price impacts. It was, in the author’s opinion, perhaps the single most damaging legal movement in recent US history.
There were many and various consequences up to 2020, but I would say that the largest of them is that the burden of evidence for successful antitrust has slowly increased over the years, while the evaluation of corporate strategy has grown more and more permissive. Completely coincidentally, America underwent an unprecedented period of corporate consolidation, leading to …
The Modern Antitrust Context - Google and Apple and Amazon and Microsoft and …
OK, so one might hear things like “burden of evidence” or “higher standards”, and kind of brush them off. After all, if we’re on the “right” side, we can just clear those tests right? Well unfortunately, that’s not really how American law works in practice.
Launching an antitrust case is a huge investment. My firm currently bills me out at USD 900+ per hour, even my analysts cost USD 500+ per hour. Hiring my firm, and also a law firm, and also experts, and also everything else needed for a case go forward is an investment that can easily reach millions of dollars of billable hours per year of legal effort. And cases often last multiple years and appeals and expert reports and reply reports and etc.
Large firms know this. They also know that relatively sympathetic courts want rock-solid proof of specific items before they actually pursue antitrust remedies. Sometimes the courts even make up new tests and evidence that they now want plaintiffs to furnish! They have in effect a multi-million dollar shield against any and all prosecution.
So the corpos try to skirt the edges of established law, ensuring the case is ambiguous. They behave strategically. They take many and various actions which do not raise prices in the short run, but have the effect of foreclosing competitors. And then, because nobody wants to spend millions on maybe convicting / possibly needing a change in jurisprudence, they get away with it for years and decades.
Amazon, for example, demands that its vendors always offer the best price on Amazon. Platform economists would say that these “most favored nation” clauses are almost certainly harmful to competition. Obviously, WeSellShoes is going to have trouble competing with Amazon on price if they literally can’t compete on price. No vendor will risk being foreclosed by the largest platform. Robert Bork might look at that and say “see! No [short-term] price impact!”, but I would argue quite strenuously that what we are witnessing is an undisturbed, festering monopoly.
Very author-biased argument here, so take it with a pinch of salt. I think that a lot of what America looks like today is heavily influenced by the decisions we made in the 80s. Specifically, as business interests got more and more market share, and therefore became more and more structurally important, political power naturally flowed toward them.
Wealth has always had some influence on our politics in the US of course, but I really think the concentration of wealth has allowed certain interests to dictate the shape of the economy, and therefore the shape of the lives of our citizens. For example, the 3 decades of wage stagnation following the 1980s is believed to be at least partially a result of rising employer market power (direct monopsony effect) and the decline of unionization (arguably an indirect political effect).
The Current Antitrust Environment - Pls Save Us Lina Khan
I really miss when she was in government. But anyway, recently there’s been a shift in antitrust thinking against this “price focused” regime, once again as a result of a lot of economists and legal scholars. In particular, Lina Khan became a central figure in this new, more active prosecution of monopoly maintenance (though less actively now that she’s not in government), especially by large tech firms.
Essentially, the argument is that we should once again begin focusing more on competition and competitors rather than short term price. It turns out that when a specific empirical measure becomes a goal, it ceases to be a useful signal. Price tests can be gamed, and are gamed. The presence of competitors, on the other hand, is much harder to simulate / obviate without doing things (like price fixing / collusion / etc.) that are (for now) obviously illegal.
This case, and those like it, are not just about Steam. Every single large online platform uses similar tactics. It’s about Amazon not showing non-amazon affiliate shipping services. It’s about Facebook acquiring every potential competitor. It’s about Google charging 30% of revenue just to be listed in their app store.
I know that there is a lot of reflexive support for Steam. But I would say that if it transpires that Steam appears to be performing illegal monopoly maintenance, I really think we should want legal consequences. Even if we have to download annoying other stores to play the games we want. Because in the wider context, successful enforcement is the only way that legal precedent and legal movements can gain momentum. This is just a small microcosm of an ongoing battle, and every loss sets us back by years and years.
And also, let’s be clear, the remedies being pursued are just like “drop the MFN clause, maybe pay some damages” not “we’re gonna blow up Steam and feed Gabe Newell to crocodiles.” I feel like a lot of online commentators are defending Steam like it’s gonna get ended as a going concern, rather than receive a light slap on the wrist.
OK Let’s Talk About Steam
I’m gonna be honest, I had mostly viewed Steam as a “harmless monopolist”. Mostly because its competitors are so dogwater. But I would say that this harmlessness comes with major caveats. In my experience very few monopolies ever remain harmless (see every current tech giant). There’s too much money involved.
Steam controls the large majority of all electronic game sales. By market share, it is indisputably a monopoly concern. This is especially concerning for platform monopolies, because those monopolies can effectively foreclose firms (in this case game devs), preventing them from accessing their consumer base. If Steam wanted, and was not restrained by law, they could probably charge like 50% or even 70% entry fees to devs. The 30% number is purely artificial; it’s not really bounded by any economic reality, only the total value of being able to access most of the market.
But, again, that is not illegal. If devs have to swallow 30% fees, it might even encourage them to support and develop competition. Then, the intuition goes, that competition should lower fees and improve services.
Unfortunately, as is public knowledge, it would appear that Steam has been enforcing de facto and explicit most-favored-nation agreements to prevent precisely that. Unfortunately Steam has long had a “culture” of “not writing things down” (very common in monopolies unfortunately), so evidence is not as extensive as it could be. However, there is evidence (direct communication) that specific cross-platform games with large userbases were prevented from offering lower prices on other platforms, even if they were incentivized to do so.
I would emphasize that Steam isn’t doing that for no reason. Steam’s incentive is clear. If you allow another platform to begin undercutting you on a popular multiplayer game, that might cause that platform to gain users. And if that platform gains users / devs / etc., then buy-side consumers might begin to multihome. Imagine, for example, if there were two decent gamestores, Steam & Hot Water, with a large user overlap. It’s much harder for Steam to maintain 30% fees on revenue if that’s the case. If Hot Water can steal 30% of Steam’s devs by offering them a 20% revenue fee, then of course it will do so. That’s how basic competition works after all.
I’ve seen a lot online about how “you don’t have to use Steam”. But I would really really push back against taking the position “it’s not a monopoly only if someone is forcing you at gunpoint to only use that product and no others.” By that definition, no company, even Standard Oil, would have been a monopoly. You technically have multiple options for insurance and healthcare and credit cards and online platforms. That doesn't mean they can't do shitty things. Instead, I’d encourage people to consider the marginal benefit to society. Is it better for the world if Steam can’t prevent games from being cheaper on other platforms? If so, we should want that.
Anyways, back to the current legal case. The harm to consumers is theoretically clear, though I am less sure empirically. When you prevent competitors from establishing competitive differentiation, network effects make platform businesses remarkably stable. In the long-run, I would expect that sustained prices are higher, variety is lower, and innovation is lower. In the short-run … who knows. The Epic Game store really tried to differentiate itself with free games / etc., and that didn’t seem to work.
Work on this is in its very early stages, with the existence and also effect of many of Steam’s conducts unclear (yay data work for stillenacht). I suspect that damages, if we calculate them, may vary greatly depending on the assumption one makes. I hope that we can get a judgement against the MFN, as it would build more momentum towards getting those generally outlawed. I’ve never really encountered the situation “actually a monopolist preventing rivals from offering discounts is good, actually.”