The Law and the Short of It: Level Up's New Legal Affairs Columnist Justin Blankenship Examines Recent Developments On the EA-Take-Two Front

re: The Law and the Short of It: Level Up's New Legal Affairs Columnist Justin Blankenship Examines Recent Developments On the EA-Take-Two Front

jdman18 — Wed, 23 Apr 2008 20:11:22 GMT

Thanks Justin. That was an excellent introduction to the law of mergers, as it applies to the EA/ Take Two deal. I wonder what the relevant product market really is here. I am guessing that it at least encompases all sports video games. I don't know that I would worry about the deal reducing innovation in the sports games market . History has shown that if EA becomes too complacent another innovative software company will eventually step-up to take their place.

re: The Law and the Short of It: Level Up's New Legal Affairs Columnist Justin Blankenship Examines Recent Developments On the EA-Take-Two Front

Justin Blankenship — Wed, 23 Apr 2008 20:25:12 GMT

Normally I would agree with you jdman, about another competitor stepping up to replace a loss of competition in the industry. But what I think makes this different is the stable of exclusive licenses that EA is stockpiling that effectively keep any competitor from coming in and making a professionally licensed team names, rosters, etc. That's why this deal is getting attention from the FTC.

Look at football right now. The NFL exclusive for football doesn't keep other developers from making competing football games entirely. But can games like Take Two's All-Pro Football 2K8--no matter how fun it might be--really compete on an even playing field with Madden when it has to use retired all stars to fill out a roster of teams named the "Rhinos" and the "Assassins?"

Also, I think any new competitor will take several years to enter the market, and several more before their development talent/expertise can match what EA Sports does year after year--even if EA gets complacent. Even if the loss of competition only occurs for 4-5 years or so, that's more than enough of a harm to consumers to trigger antitrust concerns.

re: The Law and the Short of It: Level Up's New Legal Affairs Columnist Justin Blankenship Examines Recent Developments On the EA-Take-Two Front

veebs — Thu, 24 Apr 2008 19:38:23 GMT

Very interesting article, great stuff. I do have one thing to add to point 4, however (re: innovation). Though the EA/T2 merger might eliminate some of the competitive motivation to innovate, there is still a sales motivation to innovate, as they're basically competing with the previous versions of the game. EA still needs the fans who bought Madden '07 to also buy Madden '08 and Madden '09 and so forth, so they do have a reason to make the game better and thus more appealing to consumers. Especially as the looming recession shrinks entertainment budgets, EA will need to convince gamers to spend their $60 on a slightly newer version of a game they already own vs. a brand new experience from a competing genre.

re: The Law and the Short of It: Level Up's New Legal Affairs Columnist Justin Blankenship Examines Recent Developments On the EA-Take-Two Front

Justin Blankenship — Fri, 25 Apr 2008 16:43:21 GMT

Good point veebs. You're right in that there's clearly still some incentive to innovate, so I'll try to refine what I was saying a little bit.

Although the incentives to innovate for a monopolist who releases a new title every year aren't nonexistant, they certainly change. When you're competing for market share on a head-to-head basis, there's a large portion of market share available to capture providing a very real incentive to beat the other guy in terms of quality of product.

When you're the only game in town, you're right--there's still an incentive to beat last year's product. But, economically speaking, there isn't a large potential untapped market share to go after like there is in a head-to-head situation. Sure, making a better product allows the monopolist to grow the market and increase sales. But these are smaller incremental gains than those that would be available in a competitive environment, and they may not justify the investment.

In other words, if you've already cornered a certain market, then innovation comes with less of an upside than it would in a competitive environment. And any smart business is always looking at the incremental benefit to be gained from more sales, and weighing that against the cost investment of R&D in a basic cost-benefit analysis. And for a monopolist, less potential gain means less of an incentive to invest in innovation.

I'm not sure I explained that as clearly as I could, but I hope I made my point somewhere in there . . . .