Microsoft Antitrust
Microsoft Antitrust
Introduction:
An accurate understanding of the economics of the computer and Internet industry is a crucial foundation for following the logic of the Microsoft Anti Trust Case. Microsoft’s attempts to avoid competition by suppressing new technologies were based on the particular way in which competition works in the computer industry. The harm to consumers and society flows from the consumers’ choice lost as a result of the suppression.
With powerful forces for both competition and monopoly in place, it is no surprise that many observers are drawn to one of the two false extreme positions. Some think that the industry is already at perfect competition that even a product at the center of network effects like windows would be quickly replaced if a superior alternative come along. Others think that the user’s and the developer’s sunk cost and network effects surrounding windows are so strong that it could not be displaced. The truth lies somewhere in between. Network effects do indeed allow monopolies like windows to have high entry barriers, but these barriers can fall under the right circumstances such as when specialized firms advance key, complementary technologies, used by the same applications, disruptive technical and market change. This creates a powerful incentive for incumbent monopolists to block focus, which might lower entry barriers.
The relationship between positive economics and the antitrust is direct. If either extreme position had been true, the basis for antitrust case would have vanished. If windows were not a monopoly, Microsoft’s efforts to suppress innovation by other firms could not have harmed competition, since operating system competition would not have existed either way. As in any monopolization case, the government needed to show that there was a monopoly but that it could have ended, was it not for abuse of monopoly power via anticompetitive actions. The government met this burden in Microsoft’s case by showing that widespread distribution of internet-based technologies outside Microsoft’s control such as Netscape’s browser or Sun’s Java, would have established Divided Technical Leadership and thereby lowered the entry barrier were it not for Microsoft’s anticompetitive behavior.
Microsoft is a very effective marketer of software, and the antitrust case is overwhelmingly about marketing practices. Any new technology in the computer business needs the collaboration of dozens if not hundreds of third party complements. Microsoft sought, by bullying where they had the bargaining power and by bribes where they did not, to prevent third...