Microsoft And Monopoly Essay Example For Students

Microsoft And Monopoly Essay Americas century-old antitrust law is increasingly irrelevant to our modernglobal information technology market. This law is obsolete, in accordance to thecurrent Microsoft situation, because in the past there wasnt technology asthere is now. Recently the government has been accusing Microsoft as being amonopoly. Techno-Optimists claim that efforts by government topromote competition by restraining high-tech firms that acquire market powerwill only stifle competition. Some analysts disagree. They concede thatdynamic technology makes it tough to sustain market power. Still, consumers willwant compatible equipment, which will lead them to buy whatever product otherconsumers are using, even if the product is inferior. Hence, is Microsoft amonopoly or not? The range of views extends from the optimists who think thatchanging technology removes the need for antitrust, to middle-of-the-roaderswho think that antitrust has always been and still is an important weapon in thegovernments arsenal . Microsoft is not a monopoly. Our world oftelecommunications and information technology has brought about many changes inmany fields but new technology has neither extinguished nor revitalized thereason for antitrust. There are monopolies that the government ought to control. Those are the very monopolies that the government created itself. It isgovernment that creates monopoly power by erecting and maintaining barriers tomarket entry. In the most recent dispute between Microsoft and the Department ofJustice (DOJ), Microsoft is accused of tying-in an Internet browserinto Windows. Microsofts tie-in of its browser (Internet Explorer)with its operating system (Windows 95) is a tie-in that shows no greater threatto competition than the packaging of tires with cars, cream with coffee, laceswith shoes, even left gloves with right gloves. In actuality, tying arrangementsis pro-competitive. Consumers will buy the product that is more appealing totheir needs. Seven years ago the Federal Trade Commission began itsinvestigation of Microsofts market power in the sale of operating systems forpersonal computers. That investigation was later joined by the DOJ and pursuedvigorously by Anne Bingaman, then head of the Antitrust Division. The DOJuncovered one practice it de emed worthy of challenge. Microsoft licensed itsWindows software for multi-year periods on a per processor basis. Which means that, Microsoft, to help prevent software piracy, insisted thatcomputer makers pay a royalty to Microsoft for each computer they shipped,whether or not Windows was installed as the operating system. DOJ was notpersuaded by Microsofts argument that physical machines can more easily becounted than intangible copies of computer software. Nor was DOJ convinced thatcustomers might actually favor long-term contracts to guard againstunpredictable price increases and other uncertainties. This arose the question;did Microsoft exploit its dominant market position by insisting onunfair licensing arrangements? Of course not. Consider that Windowsbecame the industry standard because PC-makers thought it was asuperior product. An assessment that surely took into account theentire set of product features. Not only technical features but also ease ofuse, quality, price, service, and contract terms. Just like any other product inthe competitive market. Consider that there were no barriers that would preventanother competitor from driving Windows out as being the market leader. Theseare simple conditions that exist in an economic market. Those considerations,apparently, did not impress the DOJs Antitrust Division. After a five-yearinvestigation costing millions of dollars, the Antitrust Division found littlethat could be characterized as anti-competitive. But that did not stop thegovernment. Not only did DOJ file an antitrust suit that caused Microsoft tocancel its planned release of Intuit (a manufacturer of a popular personalfinance program) it also threatened to halt the release of Windows 95(Microsofts upgraded operating system). The head of the Antitrust Division,Bingaman, was reportedly concerned about the link between Windows 95 and theMicrosoft Network (MSN), an Internet service provider intended to competeagainst America Online (AOL). Whenever a user started a Windows 95 system, anMSN icon appeared. Then one click of the mouse connected the user with the MSN service. That packaging, according to DOJ, gave MSN an unsporting edge over itsonline rivals. But a few more mouse clicks enabled any Windows 95 user to bringup an AOL icon, which would appear automatically thereafter, at the same time asthe MSN icon. Satisfied with its discovery that MSNs edge could be neutralized,the Antitrust Division abandoned its threat to block Windows 95. In result, MSNnow loses an estimated $200 million annually providing service to fewer than 3million customers. On the other hand, AOL, has 9 million subscribers and willadd nearly 3 million more when it acquires Compuserves consumer business. Genetics EssayBibliography1. Bank, David. Why Software and Antitrust Law Make an UneasyMix, The Wall Street Journal, October 22, 1997, p. B1. 2. Gates, Bill.,Why the Justice Department Is Wrong, The Wall Street Journal,November 10, 1997, p. A22. 3. Moore, James F., U.S. v. Microsoft: TheBigger Question, New York Times, January 25, 1998, p. 12-BU. 4. Train,Kenneth E., Optimal Regulation : The Economic Theory of Natural Monopoly,October 1991, p231-45 5. Wollenberg, Keith K., An Economic Analysis ofTie-In Sales: Re-Examining the Leverage Theory, Stanford Law Review 39(1987): 737, 755-56 6. Microsoft Under Attack, but Who Is ItHurting? USA Today, October 23, 1997