The 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 in the December 12, 1999 issue of
National Review,
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.
