Metaverse poses new competition challenges – POLITICO

The EU’s digital chief Margrethe Vestager wants the future operation of the so-called metaverse to face more scrutiny, saying that plans to create an all-encompassing virtual reality environment pose new challenges for antitrust regulators.

The metaverse has become synonymous with the grand plans of Meta (formerly Facebook) to create shared virtual spaces, allowing for users to interact, work, play games and consume in an immersive digital environment that mirrors many of our real-world habits.

“The metaverse will present new markets and a range of different businesses. There will be a marketplace where someone may have a dominant position,” Vestager told POLITICO in an exclusive interview. “Things are happening that we need to be able to follow.”

But while Meta has pitched the most ambitious plans for building its own metaverse, there are other metaverse iterations — such as Decentraland and Sandbox.

Meanwhile, retailers are already hedging their bets on the economic potentials of this space.

Nike has filed trademark applications for downloadable virtual goods, Walmart has plans to build online retail stores stocking virtual merchandise, virtual real estate is selling for hundreds of thousands of dollars, and in China, Shanghai public authorities plan to offer public services through the metaverse.

For the EU’s Vestager, now is the time for increased analysis into the markets that will emerge across metaverse iterations, and potential abuses of power that could come as a result.

“We should start thinking about it now,” Vestager said, adding that the likely increase in the use of so-called nonfungible tokens, or NFTs, within the metaverse could also be an area to follow closely.

NFTs are digital assets that represent ownership of a specific item or piece of content. NFTs will play an important role in Meta’s bid to generate a virtual economy where such assets are traded.

Speaking at Meta’s Facebook Connect 2021 conference, company Vice President Vishal Shah said that “the metaverse will remove many of the physical constraints we see on commerce today and make entirely new businesses possible,” noting that the project would explore “new types of ownership models and entitlements,” including NFTs.

The economics of the metaverse

For Vestager, the economics of virtual worlds and gaming is a precursor to examining some of the questions concerning fair competition in the metaverse.

“In the gaming world, you already have people paying hundreds of thousands of dollars for ‘skins’ and certain items that you can trade,” she said. “And there are human traders that go in between the seller and the buyer.”

“It all happens online, but there are new markets emerging that are not just in the game.”  

In terms of a deeper probe into the metaverse’s economic model, it is still early days, Vestager said — although an examination into potential abuses that may arise is on the horizon.

“We’re trying to figure out how to ask the right questions,” she told POLITICO.

But while the Commission’s antitrust regulators are mulling over how best to approach the future threats to “fairness” — Vestager’s leitmotif in her own brand of competition enforcement — other jurisdictions are gradually taking a closer look at Meta’s actions in the metaverse space.  

Last weekend, news emerged from Washington that the company’s virtual-reality headset Oculus — used for accessing nascent editions of the company’s metaverse — has come under the magnifying glass of the Federal Trade Commission and a group of U.S. states.

That contingent is probing whether the Oculus app store may be discriminating against third-party apps that compete with Meta’s own.

According to a Bloomberg report, antitrust enforcers stateside also have suspicions about Meta’s sales strategy and how the company undercuts competitors through anticompetitive pricing of its headset. Last Christmas, the device was hailed as one of the most popular gifts in the U.S. – with reports finding that downloads of the Oculus app topped the charts in Apple’s App Store on December 25, according to coverage from CNBC.

This complements efforts in Germany, where in December 2020 the German competition regulator decided to investigate a so-called tying arrangement between Facebook’s social media accounts and access to Oculus’s services. Since then, German competition reform has come into effect, and the regulator is considering whether Meta comes under the scope of the new rules, where the Bonn-based enforcer could intervene in such abusive practices more quickly.

A ‘new breed of gatekeeper’

The outcome of such investigations into the Oculus enterprise could complicate Meta’s vision for its metaverse. But questions remain as to how competition regulators will confront new models of commerce and economy that will emerge in an entirely virtual domain. And while this world is still to be fully realized, experts in this field — along with the EU’s Vestager — say that the plans for the metaverse will mark new ways of transacting business, and as a result, create a paradigm shift in how competition policy for the digital economy should be approached.

“We will be talking about a new breed of gatekeeper, with Meta creating its own platform in which it wears many hats,” Anastasios A. Antoniou, a lawyer at Antoniou McCollum & Co., said.

“I would analyze it in line with a kind of state monopoly in the sense that Meta will actually own and operate the only means in which you can participate in its own Metaverse.”

Antoniou said that the immediate competition-enforcement concerns that come to mind when regulating the metaverse include potential practices of collusion, self-preference, and exclusion.

“In terms of collusion, for example, environments may be created which result in the exchange of sensitive information between competitors that may take place in a manner we’re not yet aware of,” he said.

“For example, the pricing of products. This may be the pricing of products both on the metaverse and in the physical world. The metaverse may be used as a conduit to tamper with competition in the physical world.”

And there may be obstacles in terms of antitrust regulators having the means to probe an entirely virtual world.

“It will be much more difficult to monitor market practices,” Antoniou said. “It would inevitably have to involve tools that are able to look into software source code, because presumably, that is where a lot of the collusive and exclusionary conduct may originate from.”

However, on the other hand, experts are also talking about the opportunities that the various metaverse iterations may provide.

“There will be great opportunities for tech companies to place existing products and services into that market, but also for new players to find their niches,” said antitrust lawyer Michaela Westrup, who co-authored a paper on the subject.

“Many are trying to adapt their products to be in the best position when the metaverse emerges more. Facebook’s renaming to Meta was a signal of their intentions in this space.”

For Westrup, the predominant issue in terms of antitrust enforcement for Meta’s metaverse concerns the transfer of power from one digital space to another.

“Among the main theories of harm that regulators should be trying to foresee is the transfer of power from one area where the gatekeeper has a strong position to other areas where they haven’t been strong or active at all,” she said.

Meta’s brand of the metaverse still has some way to go before it is fully realized, but some environments have already been launched, such as Horizon Worlds, which presents a social environment for networked friends to socialize, as well as Horizon Workrooms, which brings professionals together in a collaborative digital workspace.  

While it could be years before Meta’s fully immersive virtual environment manifests, the company’s public affairs arm wants rules to be conceived while the metaverse is in development, rather than retroactively. It also says that it aims to foster fair competition by embedding robust interoperability protocols into its metaverse design.

“On the one hand, companies get accused of charging ahead too quickly, and on the other, tech people feel that progress can’t afford to wait for the slower pace of regulation,” Meta’s Vice President for Global Affairs Nick Clegg said last year.

“It doesn’t have to be the case this time around because we have years until the metaverse we envision is fully realized.”

This article is part of POLITICO’s premium Tech policy coverage: Pro Technology. Our expert journalism and suite of policy intelligence tools allow you to seamlessly search, track and understand the developments and stakeholders shaping EU Tech policy and driving decisions impacting your industry. Email [email protected] with the code ‘TECH’ for a complimentary trial.


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