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Steam is not a monopoly

By on June 8, 2010
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I’ve some good (and not so good) comments on my post Five reasons why Steam will destroy PC gaming.

Peter Boivin, a US anti-trust attorney, provided a thoughtful counter-argument. It was so relevant I thought I would include it as a full post of its own.

I am a competition lawyer who deals with these kinds of questions on a daily basis. Having a large percentage of sales (a high market share) is simply one of a number of questions one must ask to determine whether a company has a monopoly or monopoly power.

Is Steam a monopoly?

There are two basic ways to look at whether a company is a monopoly. The first is pretty rare, but you look to see whether the company can control prices. I am not talking about those super Steam sales, since lower prices are always good for the consumer (unless they are below cost, but that’s another matter entirely), but rather the ability to raise prices about competitive levels. I haven’t seen any evidence of this. As far as I am aware the prices you find on Steam are consistent with the prices you’ll find in the brick & mortar stores and on the smaller digital distribution companies.

The more common way to try and define monopoly power is to define the “relevant market” and see what share of sales a specific company has. Defining the relevant market is key. For example, if you’re talking Coke and Pepsi and define the relevant market as carbonated soft drinks, these two companies would have a pretty big share. If you defined it more narrowly, cola-flavored carbonated soft drinks, an even higher share. If you were to define the market more broadly, soft drinks or, say, all drinks, then there shares plummet.

Same goes for Steam. If you’re talking simply “Digital Distribution On PCs”, its share is likely high. If you throw brick and mortar stores (like Gamestop, Best Buy, etc.) or even on-line stores (like Amazon) then that share is likely pretty low.

One way to determine whether two products are in the same market is to try and test to see how the price of one product affects the price of another. For example, how many consumers would switch from buying a PC game on Steam to buying a PC game from Best Buy if Steam raised its prices by 10%? If enough people would switch, then they are likely in the same market.

It’s about more than just market share

Market share, however, is just the beginning of the analysis. You also have to look at things like barriers to entry and alternative forms of distribution. How hard would it for another company to enter the market if Steam rose prices? Or if Steam refused to carry titles from certain publishers? Can companies effectively digitally distribute their own games without the need to use Steam?

Based on my understanding of everything and because it’s my nature, I think there are stronger arguments for the Steam is NOT a monopoly side of things than the Steam IS a monopoly. This is based on the fact that I do believe their pricing is restricted by brick and mortar stores and because of ease of entry/alternative forms of distribution. It’s not like Steam prevents you from using other digital distrubtion platforms or other digital distribution means.

Pretty much every PC game I have purchased since Dec 08 (save one game, the unfortunate “Blood Bowl”) I have bought from Steam. Most purchases were made because of price (older games) or convenience (newer games). I downloaded “Blood Bowl” from the company’s own web store because it wasn’t available on Steam. I had no problem doing so. If it turned out Steam was jacking up prices, I would either get off my ass and walk to GameStop or remain on my ass and order it off Amazon with, like, three clicks of a mouse button.

To sum, Steam doesn’t have market power and would likely be seen to compete with both on-line retailers like Amazon and brick-and mortar-retailers like Best-Buy and Gamestop in a market for the “sale and distribution of PC games.”

Acting “before it’s too late” will only stifle innovation

As for the government “acting before it’s too late”. That’s not how it works. You can’t place restrictions on a company because you’re afraid they might become too powerful, unless that company is becoming too powerful through illegal means. By all accounts, Steam has reached the point it is at now – outselling everyone by a factor of 10 – because it is offering a solid product, lower prices, and is innovative. You can’t shackle companies for stuff like that. That’s only going to chill innovation. Why work hard and make a fantastic product that’s better than anything else if the government is just going to punish you for it?

There is a reason why Microsoft got dinged by the DOJ and European Commission. They were engaging in illegal activities, such a monopoly leveraging and bundling (using their legal monopoly in system operations to grant an illegal monopoly in the internet browser market). Eventually, if a company gets too big, like a Google, competitors, customers and suppliers start complaining and that’s when the door opens. Until then, you can’t just go after a company based on fear and unfounded speculation.

Peter is a antitrust attorney in the United States who has been practicing for 10 years.   In addition to his training in the United States, Peter also spent three years working on European Competition matters in Brussels, Belgium.

About Nicholas Lovell

Nicholas is the founder of Gamesbrief, a blog dedicated to the business of games. It aims to be informative, authoritative and above all helpful to developers grappling with business strategy. He is the author of a growing list of books about making money in the games industry and other digital media, including How to Publish a Game and Design Rules for Free-to-Play Games, and Penguin-published title The Curve: thecurveonline.com
  • drone1

    I’m coming in late to the party as I am composing an antitrust complaint against Steam on the basis of unfair restrictions on product access as a result of its business practices.

    The brick and mortar argument here is, as of 2012, not so strong. In the last several years, retail outlets distribute only a very small number of AAA releases and almost nothing else. For many small publishers, there is no access to distribution through the big chains. SO they are forced, in many ways, to distribute through Steam. For them, it’s a win win. Access to a massive audience in exchange for exclusive distribution and DRM control on Steams terms only. Exclusive distribution rights, while not so far effecting pricing, do affect the ability of consumers to access products under reasonable terms. Let me explain what I mean.

    Steam basically requires that all purchasers of their games have access to Steam accounts in perpetuity as long as they use the product. This means that my ability to use a product made by one party is entirely dependent on the arbitrary policies of a third party. If something happens to my account–such as a hack that freezes it–than my access to purchases is lost until Steam decides–IF it decides–to reinstate the account. In the absence of timely customer service, this amounts to a confiscation of the product and, in my view, violates not only the agreement with the customer but also several planks of various laws against monopolism and cartelism. As the author says, it’s not just about pricing. It’s also about access.

    While there needs to be much stronger government regulation of the software industry in terms of DRM atrocities, there is still the point to resolve of whether or not Steam has the right to control all terms of access to products legally purchased by their customers without any formal OR reliable process of indemnification. So far, what I see, is that it’ basically a system reliant on the whimsy of a wildly understaffed system of service reps.

    I think this is bad. I think it amounts to theft of purchase. I think it needs to be stopped. An analogy to my case is this:

    I lose the key to my apartment. My landlords find out before I do, and then notify me that something is amiss. They then enter my apartment and confiscate my floor fans, telling me that they need to secure my property until they can re-core the door. This is essentially what happens to Steam accounts when they are hacked by thieves and pirates.

    I am fed up with this, and while my case is shaky as heck, maybe it’s time to get this stuff out there.

  • FirePlay

    if a compy is offering lower prices then the rest of the market, they will slowly kill off competition. Brick and mortor market’s will run as long as people are not too lazy.
    People today are lazy and want low price’s so Steam gives that to them. This makes Steam a small monopoly.

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  • Firefox’s (Mozilla) success and Google’s excellence along with the open source community’s spirit will be what forces Microsoft to change its’ ways or become a much smaller player on the market.

  • Because web browsers like Internet Explorer make money from advertising revenue. People love the internet, everyone needs to use a web browser to access websites. Packaging Internet Explorer as the default browser in the leading, nearly monopolistic operating system (Windows) was an unfair advantage. Sure, it;s Microsoft’s system, but the web browser was more than just the default choice. It was tied into Windows so deeply that it was nearly impossible to uninstall or remove. Other programs and services would depend upon what should have just been a modular part on the system. If Microsoft hadn’t of pushed IE in a way that the EU found to be illegal they wouldn’t have had to teach people in mass what a web browser is or advertise and support their competitors to the point that a browser like Opera had a boost of a bout 5x the normal rate of adoption for a while if I remember correctly.

    Also, if you control a source of anything, you can do more than just make money off of it directly. By controlling a source you can dictate standards or access to it. That means they were doing more than profiting from ad revenue, they were also stifling the web by dubiously keeping their partially standards compliant browser with a high amount of market share. IE constantly fails the Acid test and it’s not by accident. The web is starting make pc’s OS-Agnostic. Imagine if IE6 and above were all fully browser compliant. What would stop redhat or Canonical from approaching pc manufacturers to have their linux distro’s as the default os of their machines for free or a very significantly lower cost? If people are mainly using the browser and office productivity and multi-media then those free linux distribuitions of the kernel and utilities would be more than enough to utterly destroy Microsoft’s marketshare in the operating system and all OS related markets. Graphics and commercial support would swiftly follow if the market changed. It wouldn’t be difficult with a system that’s 100% open source. Anyone can download the code to figure out how to support the system and how to avoid most potential conflicts.

    Firefox’s (Mozilla) success and Google’s excellence along with the open source community’s spirit will be what forces Microsoft to change its’ ways or become a much smaller player on the market. Yes, Internet Explorer really is that important. It causes web site designers to go against the standards of the webs to support the most popular browser. It causes other browsers to be locked out of sites or have issues because they’re not IE. Microsoft is not nearly as dumb as people make them out to be. Even if it was just laziness or stubbornness, they’re still in their comfortable position because Internet Explorer sets its’ own standards and dows not properly use the establish standards of the web.

  • Guest

    why would Microsoft force something (Internet Explorer) on people that they don't pay extra for and cost them money to make

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