America’s century-old antitrust law is increasingly irrelevant to our modernglobal information technology market. This law is obsolete, in accordance to thecurrent Microsoft situation, because in the past there wasn’t technology asthere is now. Recently the government has been accusing Microsoft as being amonopoly.
“Techno-Optimists” claim that “efforts by government topromote competition by restraining high-tech firms that acquire market powerwill only stifle competition. ” Some analysts disagree. They concede thatdynamic technology makes it tough to sustain market power. Still, consumers willwant compatible equipment, which will lead them to buy whatever product otherconsumers are using, even if the product is inferior.
Hence, is Microsoft amonopoly or not? The range of views extends from the optimists who think thatchanging technology removes the need for antitrust, to “middle-of-the-roaders”who think that antitrust has always been and still is an important weapon in thegovernment’s arsenal. Microsoft is not a monopoly. Our world oftelecommunications and information technology has brought about many changes inmany fields but new technology has neither extinguished nor revitalized thereason for antitrust. There are monopolies that the government ought to control. Those are the very monopolies that the government created itself. It isgovernment that creates monopoly power by erecting and maintaining barriers tomarket entry.
In the most recent dispute between Microsoft and the Department ofJustice (DOJ), Microsoft is accused of “tying-in” an Internet browserinto Windows. Microsoft’s “tie-in” of its browser (Internet Explorer)with its operating system (Windows 95) is a tie-in that shows no greater threatto competition than the packaging of tires with cars, cream with coffee, laceswith shoes, even left gloves with right gloves. In actuality, tying arrangementsis pro-competitive. Consumers will buy the product that is more appealing totheir needs. Seven years ago the Federal Trade Commission began itsinvestigation of Microsoft’s market power in the sale of operating systems forpersonal computers. That investigation was later joined by the DOJ and pursuedvigorously by Anne Bingaman, then head of the Antitrust Division.
The DOJuncovered one practice it deemed worthy of challenge. Microsoft licensed itsWindows software for multi-year periods on a “per processor” basis. Which means that, Microsoft, to help prevent software piracy, insisted thatcomputer makers pay a royalty to Microsoft for each computer they shipped,whether or not Windows was installed as the operating system. DOJ was notpersuaded by Microsoft’s argument that physical machines can more easily becounted than intangible copies of computer software. Nor was DOJ convinced thatcustomers might actually favor long-term contracts to guard againstunpredictable price increases and other uncertainties.
This arose the question;did Microsoft exploit its dominant market position by “insisting” on”unfair” licensing arrangements? Of course not. Consider that Windowsbecame the industry standard because PC-makers thought it was a”superior” product. An assessment that surely took into account theentire set of product features. Not only technical features but also ease ofuse, quality, price, service, and contract terms.
Just like any other product inthe competitive market. Consider that there were no barriers that would preventanother competitor from driving Windows out as being the market leader. Theseare simple conditions that exist in an economic market. Those considerations,apparently, did not impress the DOJ’s Antitrust Division. After a five-yearinvestigation costing millions of dollars, the Antitrust Division found littlethat could be characterized as anti-competitive. But that did not stop thegovernment.
Not only did DOJ file an antitrust suit that caused Microsoft tocancel its planned release of Intuit (a manufacturer of a popular personalfinance program) it also threatened to halt the release of Windows 95(Microsoft’s upgraded operating system). The head of the Antitrust Division,Bingaman, was reportedly concerned about the link between Windows 95 and theMicrosoft Network (MSN), an Internet service provider intended to competeagainst America Online (AOL). Whenever a user started a Windows 95 system, anMSN icon appeared. Then one click of the mouse connected the user with the MSNservice. That packaging, according to DOJ, gave MSN an unsporting edge over itsonline rivals. But a few more mouse clicks enabled any Windows 95 user to bringup an AOL icon, which would appear automatically thereafter, at the same time asthe MSN icon.
Satisfied with its discovery that MSN’s edge could be neutralized,the Antitrust Division abandoned its threat to block Windows 95. In result, MSNnow loses an estimated $200 million annually providing service to fewer than 3million customers. On the other hand, AOL, has 9 million subscribers and willadd nearly 3 million more when it acquires Compuserve’s consumer business. Although rivals complained that bundling MSN software with Windows 95 wouldswamp competition, Microsoft’s proved them wrong because Microsoft made lessermoney then AOL.
Whatever competitive advantage Microsoft may have in the sale ofoperating systems, the company has been ineffective in maintaining thatadvantage. Consumers, simply, refuse to buy a product they do not like. However,the DOJ didn’t stop pursuing Microsoft. For the Antitrust Division, now headedby Joel Klein, has raised the issue yet again, this time objecting that Windows95 and Internet Explorer are two separate products, not one integrated product. Is the Internet Explorer a “separate” product, as Klein claims? Or arethe two products “integrated,” as Microsoft claims? Because DOJ deniesthat Windows 95 and Internet Explorer are “integrated”, Klein proposedto fine the company $1 million a day until the two products are unbundled. Inits defense, Microsoft claims that Windows 95 cannot perform several crucialtasks, like word processing, imaging, and drawing unless all Explorer files areinstalled.
DOJ rejoins that Microsoft did not have to make Windows dependentupon the browser and could easily have allowed computer manufacturers to”uninstall” Explorer without endangering the operating system. Internet Explorer is more than a bunch of enabling files and more than an applet(a mini-applications i. e. Notepad). It is an elaborately developed Web browser,capable of standing alone and, in fact, was originally sold by Microsoft as afull-featured, independent application. Nevertheless similar products, also tiedto Windows, have survived government scrutiny.
MSN, for example, is afull-featured, independent application, yet DOJ allowed it to be packaged withWindows as a joint product. DOJ’s introduced a new rule that products initiallydistributed in separate boxes must be permanently distributed in separate boxes. It is as if air-conditioning, once sold as a later-installed option in cars,must be forever so sold like that. More importantly, insists Microsoft, twoproducts can be “integrated” even if they are not technicallyinterdependent. The products need not function only in combination, nor bemarketed only as a package. To be characterized as “integrated,” theyjust need to be combined in a manner that creates synergism, a whole that isbetter than the sum of its parts.
According to Microsoft, that characterizationapplies no less to the current product package than it did in the 1980s whenoperating systems first included software that allowed interaction with harddisk drives, or later when operating systems began supporting local areanetworks. Again there is more proof of Microsoft not being a monopoly andabiding by the rules of the DOJ. Today, fax modems and e-mail, once availableonly as separate products, are essential ingredients of an operating system. Anysystem without those functions would be incomplete. And in an environment where”Internet access” is very important browser software is no lessessential.
That is why IBM and Sun Microsystems, like Microsoft, have packagedbrowsers with their operating systems. That is also why IBM, Hewlett-Packard,Compaq, and other computer manufacturers have bundled both Internet Explorer andits principal competitor, Netscape Navigator, with Windows 95. Like a competitorto assure Internet users maximum flexibility. Netscape has itself tied a widerange of other software products, for example e-mail, security systems, andgraphics to its browser. Such decisions, argues Microsoft, are better left tocomputer companies than to government lawyers. Even if competitor protectionwere a legitimate objective of the law, there is no reason for the government tointerrupt Microsoft’s situation.
Rather than badgering Microsoft, the DOJ oughtto be thanking the company for challenging Netscape’s “near-monopoly”in the sale of browsers and consumers should be grateful to Microsoft forcausing Netscape to reduce its price. Microsoft chief Bill Gates stated thequestion “Would the DOJ require the New York Times to eliminate itsbusiness section in order to protect The Wall Street Journal? Why should theanswer to that question be any different if the Times were to sell its businesssection separately, or if the Times sold 90 percent of the newspapers in NewYork? Our antitrust laws were not intended to prop up competitors but to ensurethat consumers benefit from the widespread availability of goods and services atfair prices. ” Therefore I truly believe Microsoft is not a monopoly andprobably never will be. Bibliography1. Bank, David.
“Why Software and Antitrust Law Make an UneasyMix,” The Wall Street Journal, October 22, 1997, p. B1. 2. Gates, Bill. ,”Why the Justice Department Is Wrong,” The Wall Street Journal,November 10, 1997, p.
A22. 3. Moore, James F. , “U.
S. v. Microsoft: TheBigger Question,” New York Times, January 25, 1998, p. 12-BU. 4. Train,Kenneth E.
, Optimal Regulation : The Economic Theory of Natural Monopoly,October 1991, p231-45 5. Wollenberg, Keith K. , “An Economic Analysis ofTie-In Sales: Re-Examining the Leverage Theory,” Stanford Law Review 39(1987): 737, 755-56 6. “Microsoft Under Attack, but Who Is ItHurting?” USA Today, October 23, 1997
