Issuing its provisional findings on the proposed deal last month, UK regulator the Competition and Markets Authority raised concerns that Microsoft could choose to increase the price of its Game Pass subscription plans following the addition of popular Activision content.
Prices for subscriptions can easily be revised, and Microsoft may have an incentive to do so once it adds content that is as popular as Activision’s, including CoD
The integration of Activision and Microsoft will result in a classic elimination of double marginalization effect because Microsoft will be able to acquire these games at (opportunity) cost and will have incentives to distribute them more broadly and increase the output of Game Pass relative to its counterfactual level. In order to increase output Microsoft will need to offer Game Pass at a lower quality-adjusted price.
This is exactly what Microsoft has done when it has added content to Game Pass in the past with, for example, the ZeniMax transaction resulting in additional content but no increase in Game Pass subscription prices. This is especially so given that Game Pass users are price sensitive and an increase in the price of Game Pass would affect all users, including those that do not value or play CoD.
Game Pass subscribers can cancel at any time after a month of play,” Microsoft continued. “As CoD titles are only released once a year, any impact would be short-lived as gamers who exhaust their enthusiasm for the new version of CoD within a few months will churn because of the higher price.
As such any price increase would be counter-productive as it would increase subscriber churn rates. This is entirely at odds with the Provisional Finding’s assessment of Microsoft’s rationale for the Merger.
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