The Law: Nuisance Suit
Editorial from the December 20, 1999 issue of National Review.
By NR's Editors
Microsoft case has produced a split among conservatives, reflecting in part
a longstanding division between the Chicago and Austrian schools of economics
over the wisdom of antitrust law. Whatever the theoretical verdict, however,
the historical record argues for caution in the application of antitrust
law. Too often, it has been used to undermine its stated aims used,
that is, to raise prices rather than to lower them, to stifle rather than
to promote competition. As Richard A. Epstein argues, the Microsoft case
can be seen as an example of this tendency: Netscape has tried to use the
muscle of the federal government to keep Microsoft from threatening its
dominance of the browser market.
Judge Thomas Penfield Jackson’s “findings of fact” in the case, which went heavily against Microsoft, do not alter this judgment. Jackson finds that Microsoft is a monopoly, one that “enjoys so much power in the market for Intel-compatible PC operating systems that if it wished to exercise this power solely in terms of price, it could charge a price for Windows substantially above that which could be charged in a competitive market.” This conclusion is absurd. Note first the exclusion, for no persuasive reason, of operating systems (such as those of Apple and Sun) that are not Intel-based.
Microsoft also faces challenges from Linux and from web-based software that runs on different operating systems. And even if this competition did not exist, Microsoft’s ability to raise prices would still be severely constrained by the fact that most Microsoft customers already own some version of Windows. Microsoft has to convince them that upgrading from Windows 95 to Windows 98 is worth the price. In this crucial sense, Microsoft is its own competitor. That’s why prices have been declining in every market in which Microsoft has a product.
Microsoft’s chief monopolistic abuse is supposed to have been the offer of its browser, Internet Explorer, for free with Windows. This “bundling” undercut the Netscape browser, which was a threat to Microsoft because it raised the possibility that computer users would be able to download programs from the Internet, bypassing Windows. (Never mind that Jackson doesn’t count web-based software as a competitor to Windows when he describes the latter as a monopoly.) Bundling does not, however, obviate the need to compete on quality: Other Microsoft tie-ins have flopped, and Explorer itself did not take off until it was improved. Netscape, meanwhile, has managed to survive Microsoft’s brutality. America Online bought it for $10 billion a year ago, and together they will control 58 percent of the browser market.
The secondary charge against Microsoft concerns its restrictive contracts. It forced computer makers to take Explorer with Windows, for instance. But computer makers were still free to use Netscape. Promotional deals with other companies were never exclusionary, and are irrelevant to an antitrust case anyway, since nobody alleges that Microsoft has a monopoly on the markets for software advertising or distribution.
The possible remedies here all look harmful, pointless, or both. Forcing Microsoft to divest itself of its application and Internet programs would not address the supposed problem of its operating-systems monopoly. Breaking Microsoft into three baby Microsofts with different versions of Windows would either sacrifice the advantages of standardization or lead to a new “monopoly.” Having government micromanage software design indefinitely cannot appeal to anyone. By the time any of these remedies could be put in place, moreover, the market will doubtless have changed beyond recognition.
The Department of Justice should drop this suit, and Congress should review the 100 other antitrust lawsuits the department has brought since 1994, to see whether its hyperactivity is interfering with the competition it is supposed to support.