A proposed antitrust class action lawsuit filed this week claims Valve Corporation, the entity behind the popular Steam platform, and several major video game developers have suppressed competition among video game sellers by agreeing that their games will not be sold for lower prices on competing platforms.
According to the lawsuit, developers who want to sell PC games on Steam’s platform must agree to what’s known as a “Most Favored Nations” (MFN) provision that effectively requires them to price their games on Steam as low as they’re sold on other platforms. In effect, the suit says, the MFN agreements prevent developers from being able to divert sales to rival platforms who charge lower commissions.
This suppression of competition not only harms developers by lowering their profits but trickles down to the consumer level by causing buyers to pay higher prices for PC games, the lawsuit argues. As stated in the complaint:
In a world without the Steam MFN, game developers would sell more PC games at the same level of profit, consumers would spend less money per PC Game, and consumers would purchase more PC Games. The Steam MFN thus harms consumers.”
What’s all this talk about a “most favored nations” provision?
As alleged in the complaint, the “most favored nations” clause within Steam’s distribution agreements violates federal antitrust law by preventing “outbreaks of competition.” Similar agreements have been the subject of recent class action litigation against Amazon.com and several major publishers over their apparent conspiracy to charge “supracompetitive prices” for e-books.
Steam, which has been operated by Valve Corporation since 2003, is currently the “dominant platform” for selling third-party PC games, the suit says, with about 75 percent of all games designed to be played on a personal computer sold through the Steam platform.
Game developers, such as Valve’s co-defendants CD Projekt, Ubisoft, kChamp Games, Rust, and Devolver Digital, must agree to pay Valve a commission on all games sold through the Steam platform, according to the case. As of October 1, 2018, Valve’s commission is 30 percent on all a game’s earnings under $10 million, 25 percent on all earnings between $10 million and $50 million, and 20 percent on all earnings over $50 million, the suit says. But the “vast majority” of sales on Steam are made at the 30-percent commission rate, according to the complaint.
In a competitive market, game developers could seek to increase their earnings by diverting sales to rival platforms who offer lower commission rates, the suit explains. By offering their games for lower prices on rival platforms, game developers could entice consumers to purchase the games through those platforms and, while paying a lower commission on those sales, make more of a profit than if the games had been sold through Steam, the lawsuit relays.
Steam, on the other hand, would then be forced to compete with rival platforms by offering lower prices for video games or better value, the case adds. Competition thus benefits game developers by allowing them to earn more, profits consumers by lowering video game prices across the industry, encourages innovation, and increases output.
That’s where the MFN provision comes in, the case says. By requiring game developers who sell on Steam to list their games at equal or lower prices than on any other third-party platform, Valve suppresses competition and prevents rivals from being able to enter the market, according to the suit.
The MFN provision, the lawsuit alleges, allows Steam to maintain its 75 percent market share without having to reduce prices or add any value as compared to its rivals.
In turn, game developers “have no choice” but to pay Valve’s 30-percent commission, consumers are forced to pay higher prices than they would in a competitive market, and rival platforms are edged out of the market because they’re unable to compete on price, the case alleges.
How about an example?
The lawsuit argues that Steam’s market dominance is not for lack of other competitors.
In 2018, Epic Games opened its Epic Games Store—a platform through which the game developer sells and distributes its own and third-party games for a 12-percent commission on all earnings.
Similarly, Microsoft Corporation operates a platform called the Microsoft Store and, since January 2020, charges a 15-percent commission for all PC game sales.
Despite these “significantly lower” commission structures, which provide developers an opportunity to lower prices and still make a profit, PC games on Epic Games’ and Microsoft’s platforms are sold for the same price as they are on Steam, the lawsuit argues.
As another example, the complaint details Discord Inc.’s unsuccessful attempt to enter the market. Per the case, Discord in 2018 began marketing itself as an alternative to Steam and offered developers a 10-percent commission rate on all earnings, which the suit notes was an “aggressive strategy that curried favor with both big and small game developers.” The case states, however, that Discord was forced to shutter its store in 2019 because Steam’s MFN provision prevented developers from being able to steer volume toward Discord through lower prices.
“Because they had agreed to the Steam MFN, game developers could not take advantage of Discord’s extremely generous revenue split,” the complaint reads. “In other words, the Steam MFN prevented Discord from competing for game developer sales.”
Per the case, the existence of Discord and other rivals, in the absence of Steam’s anticompetitive efforts, would have allowed customers to pay lower prices for PC games than they would on Steam given developers could afford to lower their prices while still making a profit.
Without Steam’s MFN agreements, a game developer could sell a game at a 20 percent discount on a rival platform with a 12-percent commission rate and make a greater profit than it would at Steam’s commission rate, according to the suit. Instead, the case says, Steam has artificially suppressed competition and protected itself from having to lower commissions or add value in order to stay on top.
So, who exactly is the lawsuit looking to cover?
The lawsuit looks to cover anyone who purchased PC games in the U.S. and its territories anytime within the past four years, as well as parents or guardians who are not Steam platform users but have purchased the games for their minor children or dependents.
How do I join the lawsuit?
As with most class actions, there’s nothing you need to do to join the lawsuit at this time. If the case moves forward and settles, that’s when those who fall into the above categories, i.e., the “class members,” will be given an opportunity to claim whatever compensation the court deems appropriate.