Acompany Is Prosecuted For Being Amonopoly

For text of the findings of law see: http://www.usdoj.gov/atr/cases/f4400/4469.htm

The debate on the Microsoft antitrust trial is one-sided. Most hold that Microsoft is a bully and should be prosecuted. Even those (like StewartAlsop?) who support MicrosoftTheMonopoly? call for some sort of government regulation. Few recall the principles of free trade that have fueled the incredible growth of America's software industry. So before delving further into the Microsoft trial, let's level the playing field here by lending an ear to an unheard voice in the debate:

The world of antitrust is reminiscent of Alice's Wonderland: everything seemingly is, yet apparently isn't, simultaneously. It is a world in which competition is lauded as the basic axiom and guiding principle, yet "too much" competition is condemned as "cutthroat." It is a world in which actions designed to limit competition are branded as criminal when taken by businessmen, yet praised as "enlightened" when initiated by government. It is a world in which the law is so vague that businessmen have no way of knowing whether specific actions will be declared illegal until they hear the judge's verdict--after the fact. - AlanGreenspan? (1962)

This paragraph opens an essay that describes the history of antitrust laws and dismantles the economic theories upon which they are based. The essay may be found today in the book Capitalism: The Unknown Ideal, by AynRand. The essay closes with a concrete example of the time that resembles the present-day Microsoft trial:

ALCOA is being condemned for being too successful, too efficient, and too good a competitor. Whatever damage the antitrust laws may have done to our economy, whatever distortions of the structure of the nation's capital they may have created, these are less disastrous than the fact that the effective purpose, the hidden intent, and the actual practice of the antitrust laws in the United States have led to the condemnation of the productive and efficient members of our society because they are productive and efficient.

[Fallacious appeal to authority. Please provide examples of a "productive and efficient" monopoly.]

It is important to remember that Microsoft is NOT being prosecuted for being a monopoly, as being a monopoly is not illegal. Microsoft is being prosecuted for using its monopoly power inappropriately. There is certainly debate about what uses of monopoly power, if any, should be illegal, but the notion that Microsoft is being prosecuted for its "success" is at best an oversimplification, and at worst completely misleading.

It should also be noted that the theory and practice of antitrust law have changed a great deal since 1962, and it is somewhat doubtful that the above comment is really applicable in today's antitrust environment. It is very unlikely that the ALCOA action would have been brought under current theories of antitrust, as it would have been very difficult to show harm to consumers, which is now required by the courts to find damages.

-- MatthewWilbert


Edited highlights from UNITED STATES OF AMERICA v.MICROSOFT CORPORATION: Findings of Fact (A document in the public domain)

Numbers relate to paragraphs.

33:In other words, Microsoft enjoys monopoly power in the relevant market.

34: ...three main facts indicate that Microsoft enjoys monopoly power. ...share of the market for Intel-compatible PC operating systems is extremely large and stable...dominant market share is protected by a high barrier to entry...customers lack a commercially viable alternative to Windows.

60: Microsoft recognizes that new paradigms could arise to depreciate the value of selling PC operating systems; however, the fact that these new paradigms already exist in embryonic or primitive form does not prevent Microsoft from enjoying monopoly power today

61: The fact that Microsoft invests heavily in research and development does not evidence a lack of monopoly power.

62: Microsoft's actual pricing behavior is consistent with the proposition that the firm enjoys monopoly power in the market for Intel-compatible PC operating systems.

66: ...Microsoft expends a significant portion of its monopoly power, which could otherwise be spent maximizing price, on imposing burdensome restrictions on its customers

67: Microsoft's monopoly power is also evidenced by the fact that, over the course of several years, Microsoft took actions that could only have been advantageous if they operated to reinforce monopoly power

132: ...from 1994 to 1997 Microsoft consistently pressured IBM to reduce its support for software products that competed with Microsoft's offerings, and it used its monopoly power in the market for Intel-compatible PC operating systems to punish IBM for its refusal to cooperate

132 cont:Microsoft's interactions with Netscape, IBM, Intel, Apple, and RealNetworks all reveal Microsoft's business strategy of directing its monopoly power toward inducing other companies to abandon projects that threaten Microsoft and toward punishing those companies that resist.

358: The relative shares [of browser usage] would not have changed nearly as much as they did, however, had Microsoft not devoted its monopoly power and monopoly profits to precisely that end.

409: ...Microsoft also engaged in a concerted series of actions designed to protect the applications barrier to entry, and hence its monopoly power, from a variety of middleware threats,


MicroSoft would draw our attention [http://www.microsoft.com/presspass/trial/] to para 408 (of 412) which is not entirely damning: The debut of Internet Explorer and its rapid improvement gave Netscape an incentive to improve Navigator's quality ...


RobertCringely? has an interesting remedy: Force MS to sell their development tools business. This makes the "ChineseWall?" between the OS and application groups more effective - because the OS people have to feed specs to dev tool companies before the MS apps people can use new OS facilities in their code.

See http://www.pbs.org/cringely/pulpit/pulpit19991118.html

I have a hard time believing that a ChineseWall? approach could be made to work at MS - it's never stopped them in the past.


The use of the word "force" in Cringely's suggestion must give us pause, since the Constitution maintains that the government use force only to protect persons and their property (or to retaliate against such violation). Cringely calls for the government to use force to violate Microsoft's property. But many reasonable people support this and similar proposals, so it warrants further examination.

The question is, has Microsoft broken the law? Herein lies the difficulty with antitrust law. One cannot point to specific practices of Microsoft and then find a corresponding statute that forbids such practice. Without that, the government risks violating the constitution by deeming a practice illegal and then prosecuting Microsoft for it ex post facto (after the fact). The difficulty lies in the vague (and dubious) language of antitrust law, which essentially says that when a company is a monopoly, it cannot then engage in anticompetitive practices. A great deal of trouble has been taken by the courts and the legislature in the past 100 years to come up with more objective criteria. Legal critics and economists alike point out that this is a futile and misguided effort, because the principles of antitrust should be questioned, not the practice. The principles of antitrust do have the effect of punishing success and undermining the free market (and therefore freedom itself). There is no difference in principle between antitrust trials and the trials of China's Cultural Revolution. The difference is only in the scale and barbarity of the practice. The danger is that once the principles fall, practice follows (which is why people lose their cool and make InflammatoryRemarksAboutAntitrust).


People sure have weird ideas about the Constitution. One would search in vain for the place or places where it allows the use of force only to protect persons and their property. It specifically allows, for instance, for capital punishment for treason, and specifies the collection of taxes, which must ultimately be backed by force or the threat of force.

And while it is true that there are respectable theoretical and practical arguments against antitrust, the comparison to the Cultural Revolution is really beyond the pale. Antitrust law isn't even criminal law; you can't be jailed for antitrust violations, nor can your property be confiscated (although you can be fined, which I am sure the above writer would regard as the same thing), and whether the law is sound or not, there is due process and appellate review. The Cultural Revolution involved the deaths of millions of people, burning of property, forced displacement of people out of their homes into rural communes or reeducation camps, and general societal chaos. If something like that happened here, Redmond would be burned to the ground, and Bill Gates would be dead or picking strawberries in Arizona someplace.
This trial does smack of the "Eat the Rich" mentality, in that the government calls Microsoft the bad guys, and now everyone wants a piece. Class action lawsuits are springing up everywhere (http://www.infoworld.com/cgi-bin/displayStory.pl?991123.pilawsuit2.htm), hoping to get back the money that Microsoft overcharged them for Windows 95. "Hmm...I bought a crummy OS when I could have gotten a better one for free...so they should compensate me for my stupidity." Of course, what's really behind it is not angry consumers, but greedy lawyers. "Hmm...6 figures in legal fees for me, and $3 in damages for each of the sorry consumers...That should compensate me for my losses in Microsoft's imminent stock crash."

Politicians cash in too (http://www.seattletimes.com/news/local/html98/gore_19991116.html). Al Gore sports khakis, a sweater and a Palm V ("Look at me, Mom, I'm a geek!") with his new-found friends on the Redmond campus. His performance there is the stuff of superb satire: "An entrepreneur or a company that wants to develop an application interface - just to pick a random example - and is not able to go into the marketplace and compete, has a right to say, 'Hey, wait a minute, that violates a fundamental American value.'" Here! Here, Al! I once wrote a thriller and no one bought it. That too violates a fundamental American value. Stephen King should be broken up for taking away my market share.

Even Bill's fellow Titans of Industry climb aboard the bandwagon. Larry Ellison came out in support of breaking up Microsoft (http://dailynews.yahoo.com/h/zd/19991117/tc/19991117226.html), in a stunning show of humility. On the one hand, he professes that Oracle is Best and will dominate the software market...but then, why isn't he afraid that he'll be next? ...Ah, yes...unlike Bill, he has friends in low places (see "A lament for Netscape").

-- Name omitted for fear of receiving strange telephone calls asking questions like, "What radio stations do you listen to? Is anyone in your family a member of the Communist Party?"
What I find interesting is that Microsoft's tactics appear to be ineffective.

Product quality determines success. IE beat Netscape once it became a significantly better browser. Apache beat Netscape because it was a significantly better server.

Office 2000 looks vulnerable to me.

We used Solaris, tried Exchange, and settled on Qube with Linux.

-- EricUlevik


IE beat Netscape once it became a significantly better browser.

IE gained ground quickly because it was *completely* subsidized by Windows95, which most Netscape users had already paid for. Later on it became something half-decent, but that really didn't matter as long as it was good enough for naive users.

Windows included IE, but this did not make a difference until it was a better browser. Windows NT 4.0 includes IE 2.0 but no-one ever used it. Newer Windows 95 included IE 3.0 and some people used it, but most just added Netscape. It was only with the significantly better IE 4 that people stopped installing Netscape.

That's funny, all the Windows users I know personally use Netscape and think IE sucks. I'm a MacUser?, and I think IE is better on MacOS than Netscape (except for certain sites with weird Java). OTOH, I think Netscape 4.51 has pulled even with IE. -- LarryKollar

Few recall the principles of free trade

FreeTrade presupposes a FreeMarket. For a market to be free, goods must compete fairly on price vs merits. But SomeoneOwnsTheMarket?, so when the Monopoly gets large enough to force the Market Owner's hand, competition suddenly becomes very unfair. Subsidies have a similar effect by misrepresenting the cost to produce something. When Big Company forces Little Company out of business by dropping the price point, the company with the deepest pockets wins. This is as capitalistic as suing someone because you know they can't afford to defend themselves.

The concept of a free market - one without large market shares - has been discredited by the AustrianSchool?. Not to mention the RealWorld.


My take:

Capitalism works best when the cost to the consumer accurately reflects the cost of production. Companies work best when they are fully refactored. If a company runs the risk of having a conflict of interest (like making both Apps and Operating System), then break it up! A company should not be able to dictate how anyone else relates to its competitors. Conclusion: RefactorMicrosoft. Believing that a FreeMarket results from having no regulation is as naive as believing that a FreeSociety? results from having no police.

-- EricBennett

My take:

Only the government can create a non-free market.

Capitalism often tends towards large market shares, and there's nothing bad about that.

-- EricUlevik


It's the EricConspiracy? again.


More pro-free trade discussion can be found at TheLibertarianParty...
  http://www.lp.org/lp.html
along with "the world's shortest political quiz.


Interesting quote in TheEconomist: "Next year Congress will no doubt balk at complying with the WTO?s ruling against America?s tax breaks to exporters, which are worth some $2 billion a year and of which Microsoft and Boeing are big beneficiaries." (Full article: http://www.economist.com/editorial/freeforall/current/index_sa6900.html) So it appears that the U.S. tries to break up a monopoly and foster its growth at the same time. Very interesting. Would seem to support the liberals' claim that government intervention leads to problems that lead to more government intervention, if it weren't for the fact that those tax breaks matter even less than the antitrust trial.


So many people have no sense of history. Antitrust suits against computer companies aren't something shocking and new. You can trace a significant amount of the personal computer revolution right back to the antitrust agreement that IBM was forced into in the 70's.

Yes, imagine that. The biggest computer company in the world was hobbled by the government. It was forced to publish its interfaces so that other companies could use them to make products that interoperated with IBMs.

The result of _that_ ruling was eventually the IBM PC clone market I'm not sure that you can really back up that claim. It is more likely that the IBM PC clone market was independent upon the ruling.

I think that in one hundred years time, our descendants will look back on the belief in the right of companies to be outside the rule of law in the same way as we now look back on the DivineRightOfKings?.

-- CharlesMiller

A more interesting view on monopolies in general and the IBM case in particular is presented by PeterDrucker in "Management: Tasks and Responsibilities." In essence he says that the "goodness" or "badness" of monopolies in general is a philosophical belief with little objective data to support either side. He continues to say that prosecution for violation of monopoly powers does not occur until after the monopoly is already in decline and thus does not have any real affect. Try looking at the Microsoft case from that viewpoint and see where it leads you.

-- WayneMack

While it looks true that the power of microsoft seems in decline in respect to its operating system, microsoft is and has been using it extensively to transfer monopolies to other trades - IE browser, MSN network, promotion("gold placement"), and next to come possibly online banking. BillG even seems to make fun of the concept, considering he showed a windows integrated with media players at the time the prosecution already was on microsoft for integrating the browser.

As with IBM, if without government action against the monopoly, the monopoly still would have crumbled, but only by action in the legally grey zone of ReverseEngineering windows in free projects. Don't you agree that it should be possible to work against a problem with the law, instead of getting free of it by ignoring laws?

-- PeterSchaefer

What is the "problem" you see that the law needs to address? There is only a problem if you assume that monopolies are intrinsically "bad." Look at it instead from the viewpoint of benefit to society. If a monopoly (or a group of competitors) fail to meet the needs to society, no law is going to force it (or them) to these needs. When a monopoly starts to fail to meet the needs of its customers, the seeds of its destruction are already sown.

-- WayneMack

The problem is TheBiggerTheyAreTheHarderTheyFall?.

-- NikitaBelenki
One thing I'm unclear about is: where does the law say companies have to be broken up? And where are the laws saying what an OS is or what an App is? How about your DVD player... how uncompetitive to include the mpeg2 codec with the os rom! I personally don't agree with the inclusion of apps in the OS, but I can't see a legal justification for preventing MS from doing it. Why shouldn't they create them all in one piece of software? "Buy our windows and save on buying apps"... just my 2 cents... --AnonymousContributor?

That's like asking why there's no law prohibiting killing someone with a knife instead of a gun. There's no law saying what an OS is or what an App is, but none is needed. The law already says you can't leverage monopoly power to build a new market. You're looking for some overly-specific special-case legislation that wouldn't make any sense even if it did exist.

--MarkSchumann

The funny part is that the US government IS a monopololy itself. :-)

EditText of this page (last edited April 10, 2012) or FindPage with title or text search