Lawsuit claims Valve is abusing its market dominance to keep prices high

A lawsuit filed earlier this week accuses Valve of using its effective monopoly on the PC gaming marketplace to force developers to sell their games on all other digital storefronts at the same price as they're offered on Steam. The suit says a "Most Favored Nations" provision in the Steam Distribution Agreement, in which a seller agrees to give a client—in this case, Steam—the best terms that it makes available anywhere else, means that other storefronts, like the Epic Games Store or the Microsoft Store, cannot compete on price, and thus are unable to effectively compete at all.

"The MFN [Most Favored Nations clause] has the effect of keeping prices to consumers high, as price competition by platforms would cause the prices of PC games sold to consumers to decrease," the lawsuit, available via The Hollywood Reporter, states. "The MFN also hinders innovation and suppresses output, as it acts as an additional barrier to entry by potential rival platforms and as higher prices lead to less sales of PC games."

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Along with Valve, the suit names CD Projekt, Ubisoft, kChamp Games, Rust LLC (which we think might actually be Rust LTD, the developer of Hot Dogs, Horseshoes & Hand Grenades, due to the Glendale, CA address listed in the lawsuit) and Devolver Digital as defendants, each of whom the suit says "unlawfully contracted, combined, or conspired to unreasonably restrain trade in violation of Section 1 of the Sherman Act by agreeing under the Steam MFN that the game developer Defendants would not sell their PC game products through competing platforms at a price lower than what they offered through Valve's Steam platform."

It also cites a January 2019 tweet from Epic CEO Tim Sweeney, who said that Steam has "veto power" over prices:

The Subtitle of your answer is exclusives are good. My opinion is competition is very important but walling things apart encourage the wrong type of competition. You should want to compete on pricing not on access.

— nickreal03 (@nickreal03) January 30, 2019

The lawsuit points out that both the Epic Games Store and the Microsoft Store take considerably smaller cuts of sales made through their storefronts than the 30 percent claimed by Valve, yet the pricing remains the same across the board. One might assume that the developers and publishers are simply opting to make more money—Epic boss Tim Sweeney has regularly trumpeted that as one of the Epic Store's core advantages—but the lawsuit alleges that "developers are not independently choosing to price PC games at the same level across platforms; they are required to do so because of their agreement to the Steam MFN."
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"Without the Steam MFN, it would be in the game developers' independent economic interest to offer their PC games at lower prices on platforms that charge a lower commission than the Steam platform because they could generate the same or even greater revenue per game as a result of the lower commissions while lowering prices to consumers," the lawsuit states. "Because of the Steam MFN, game developers must account for the Steam platform's super competitive commissions and cannot and do not lower prices on rival platforms."

It's not clear to me how that accounts for sales on other storefronts: BioShock: The Collection, to choose one at random, is currently $60 on Steam, but I can get it from the Humble Store, where it's currently on sale, for $12. Games released exclusively on the Epic Store, where they're freed from Valve's pricing constraints, don't seem to be coming in at appreciably lower prices either: The base edition of Hitman 3, for instance, goes for $60, a fairly standard price point for a major release.
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The lawsuit seeks a ruling that Steam's MFN clause "is anticompetitive and constitutes illegal monopolization and monopoly maintenance," as well as an injunction against further anticompetitive actions, financial damages and legal costs. It's not clear why the suit names Ubisoft, CD Projekt, Devolver Digital, and a couple of indie studios as co-defendants while excluding everyone else who's ever agreed to Steam's distribution agreement, but Devolver indicated that it is preparing to fight the suit in court.

"I have it on very good authority that everyone at Devolver enrolled in law school today so no one can answer this question until at least the first semester is over," Devolver rep Stephanie Tinsley said in a statement.