The Case against Microsoft
Quite frankly, the fact that Microsoft has come to dominate such an important market is a bit unpalatable. Generally, that type of domination, however obtained, tends to reduce technological innovation, consumer choice and competition. However, we now come to the most crucial question, which can be summed up in two words: define monopoly.
Did (and does) Microsoft indeed hold monopoly power? A monopoly is a situation in which a single company or group owns all or nearly all of the market for a given type of product or service. By definition, monopoly is characterized by an absence of competition - which often results in high prices and inferior products. For a strict academic definition, a monopoly is a market containing a single firm. A real-world monopolist does not have or need 100% of the market. He needs enough market share to be able to distort the free market in a way that adversely affects competitors. The reason, of course, is that society is not homogeneous and so a high market share plus other technological factors creates local monopolies in one market or section of a market. So it will be interesting to see what the courts took into account while delivering the initial judgment against Microsoft, declaring it a monopoly guilty of abusing its position.
Defining the relevant market
Microsoft Windows was said to hold over 90 percent of one particular market, namely, the market for operating systems used in Intel-compatible PCs. Other forms of operating systems - such as those used in hand-held computers, Apple Macintoshes, network computers connected to other machines, or servers for hosting Internet sites - were judged by the courts to constitute separate markets and thus to offer no competition. This is a necessary distinction, for if the relevant market had been defined as operating systems for all computing devices, Microsoft would be just another player in an actively competitive world.
Barriers to entry
Any operating system is made stronger by the number of applications available for it - the higher the number, the more popular the system will become, and thus the more likely a system will be to preserve its strength by developing still more applications. And this in itself constitutes a barrier to competitors trying to enter the market.
“Switching costs” and “lock-in”
Programs for one operating system will not run on another, which means that a consumer wishing to switch to a different operating system will have to purchase all-new software and perhaps even new hardware. Such “switching costs” are high, with the consequence that consumers are effectively “locked-in” to Windows.
In sum, Microsoft (in the courts’ view) dominated a market the boundaries of which prevent competition from entering and consumers from leaving. This in turn means that, unfettered by competition, Microsoft did not need to succeed on its merits; it could charge a price for Windows higher than if it had to respond to competition.
The Case for Microsoft
Still, the possession of these attributes merely made Microsoft a monopoly - Microsoft would be in violation of antitrust law only if it misused that power, by engaging in an illegal form of “exclusionary conduct” to protect or extend that monopoly. This, in fact, was the burden of the accusation that started the case in the first place, an accusation involving what was once called “the browser wars” – pitting its Internet Explorer against Netscape’s Navigator.
Microsoft effectively made its browser and the OS (as the company itself would assert) inseparable. This effectively created a massive distribution network - and seemed, indeed, a clear use of monopoly power to win the browser wars. In addition, Microsoft sought to make deals both with computer manufacturers and with online services like AOL to offer Internet Explorer with their products, sometimes exclusively, and it prevented manufacturers from deleting Microsoft's browser even when they also installed Netscape's. In short, it threw its weight around.
Many of these kinds of dealings, involving discounts, incentives, and exclusive contracts, are common in every industry. In this particular industry, the aggression is virulent, featuring regular commands to “kill” and “choke” competitors. But, like they contended in court while countering the accusations of indulging in “exclusionary action”, they did not actively prevent any user from installing any third-party software on their OS and using it in preference to their own. Additionally, they were also willing to compromise on their deal-making and the licensing practices.
Additionally, the technology industry is characterized by powerful increasing returns. These increasing returns make the kind of “perfect” competition that prevails in the market for, say, wheat, impossible in the market for browsers or office suites. Necessarily, each type of product will in the end be produced by only a few companies, perhaps only one. And of course, high-technology companies are themselves quite aware of increasing returns, and their strategies - above all the prices they charge when they are trying to establish themselves in a market - are very much affected by that awareness.
Conclusion
In conclusion, the case for basically leaving Microsoft alone can be summarized as follows - this is an industry characterized by state of constant flux, and, as a dedicated user of non-Microsoft software, one wishes to trust in economist Joseph Schumpeter, who in his theory of “Creative Destruction”, who basically argued that displacement of monopoly power is a commonplace occurrence in innovative industries. High-tech competition is, necessarily, a competition that ends up being won by a handful of players. Those who make vast fortunes may not always be the most deserving – but, so what?
References & Readings
Cass, Ronald A. and Hylton, Keith N., "Preserving Competition: Economic Analysis, Legal Standards and Microsoft" (1999). George Mason Law Review, Vol. 8, No. 1, 1999
Meese, Alan J., "Don't Disintegrate Microsoft (Yet)" . George Mason Law Review, Vol. 9, 2001
Sabbatini, Pierluigi, "The Microsoft Case"
Friedman, Milton, “The Business Community's Suicidal Impulse”, Cato Policy Report, March/April 1999, Vol. 21, No. 2
Rothstein, Edward, “Wronging Microsoft”, Commentary Magazine, Vol. 112, No. 2 September 2001
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