(OT) Now this guy truly irritates me
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Monopoly Shopping
As a consumer, would you be
better off if Netscape
controlled the browser
market, or if Microsoft did?
By Steven E. Landsburg
(posted Thursday, June 4, 1998)
Microsoft is paying me to write
this column. Does that affect my
objectivity? I don't think so, but I
might be wrong. Fortunately, it
doesn't matter. I'm not asking for your
trust. I'm going to lay out a simple
logical argument that you can check
for yourself. The argument stands or
falls on its own merits.
In other words, I aim to occupy the same
high ground claimed by Abraham Lincoln in
his sixth debate against Stephen A. Douglas:
If you have ever studied geometry,
you remember that by a course of
reasoning Euclid proves that all the
angles in a triangle are equal to two
right angles. Euclid has shown you
how to work it out. Now, if you
were to undertake to disprove that
proposition, would you prove it to
be false by calling Euclid a liar?
I am prepared to go Lincoln one better
and to assert that you could not prove Euclid's
proposition to be false even by calling him a
Microsoft employee.
ow, then, let's talk about Web browsers.
More specifically, let's talk about what
will happen if Microsoft extends its operating
system monopoly into the browser market as
the Department of Justice claims it is trying to
do. Microsoft denies that intention, claiming it
bundles browsers with operating systems only
to take advantage of technical synergies.
Who's right about that one? I have no
idea. Well, OK, I have some ideas, but they're
probably no better informed than yours.
Instead, I want to ask a related question, one
that is central to this whole affair but has been
almost entirely ignored in the dozens of op-ed
pieces that have cropped up over the past
couple of weeks. Namely: Would a Microsoft
browser monopoly be good or bad for
consumers?
ell--good or bad compared with what?
What is the alternative to a Microsoft
browser monopoly? There are several
scenarios you might envision. One is an
eternal competition between Microsoft and
Netscape, each striving to capture market
share through innovation. The upside of that
scenario is that browsers would get better; the
downside is that innovation uses a lot of
resources that might be better employed
elsewhere. It's not clear whether the benefits
of that competition would outweigh the costs,
or vice-versa.
Another alternative to a Microsoft
monopoly is a Netscape monopoly. Which of
those would be better for consumers? Your
gut response to that question is likely to
depend pretty heavily on whose software has
caused you the most recent frustration. For
the record, my own level of frustration with
both companies' products is so high that I
don't run Windows 95 or Netscape
Communicator. But let's you and I try putting
aside our individual peeves and recasting the
question at a more abstract level. Assume, for
the sake of argument, that there will be only
one browser and that its quality will be the
same regardless of whether Microsoft or
Netscape supplies it. Then should you, the
consumer, care who supplies it?
nder those assumptions, there's an
unambiguous answer: You should root for
Microsoft. Give me a few paragraphs, and I'll
explain why.
Windows 95 costs about $90 at my local
computer superstore. Why doesn't it cost
more? Because, despite its monopoly power,
Microsoft remains subject to the laws of the
marketplace. At a higher price, too many
customers would walk away. (If you doubt a
small price increase would significantly affect
the sales of Windows 95, you must conclude
Microsoft is undercharging out of either
foolishness or generosity--neither of which is
terribly consistent with the way the Justice
Department and the public at large think of
Microsoft.)
n fact, every time Microsoft raises the price
of Windows 95, it gets punished twice. First,
it loses sales of Windows 95. Second, with
each of those lost sales, it loses a potential
user of Internet Explorer. For example, if
Microsoft has half the browser market, then
2,000 lost Windows sales imply 1,000 fewer
users of Internet Explorer. (This assumes
people who don't buy Windows won't need a
browser.)
You might ask why Microsoft is
"punished" by the loss of an Internet Explorer
user, given that Internet Explorer can be
downloaded free. The answer, of course, is
that in the long run, it won't be free. Even
when it comes packaged "free" with Windows
98, you'll really be paying a combined price
for the operating system and the browser,
which will surely be higher than the price
Microsoft would charge for an operating
system alone.
ow think what would happen if Microsoft
had a monopoly in the browser market.
The second punishment would be
doubled--2,000 lost Windows sales would
mean 2,000 lost Internet Explorer sales, not
1,000. That's good news for consumers. Give
Microsoft a monopoly on browsers, and you'll
intensify the downward pressure on the price
of its operating systems.
In fact, the same kind of pressure works
to lower browser prices too. Just as a doubly
monopolistic Microsoft would be reluctant to
raise the price of Windows 95 for fear of
losing Internet Explorer users, it would be
equally reluctant to raise the price of Internet
Explorer for fear of losing Windows 95 users
(who might not be willing to invest in a
computer at all if the price of browsers is too
high). Of course prices will still rise and fall in
response to other forces--but they will never
rise as high under a dual monopoly as they
would under two separate monopolies.
hat doesn't prove that a Microsoft
monopoly beats any alternative. But it
does prove a Microsoft monopoly beats a
Netscape monopoly, assuming the companies
provide products of comparable quality.
I promised to make an argument that
would stand or fall on its own merits, and I
claim to have fulfilled that promise. You can
judge the argument for itself, and it doesn't
matter who else has endorsed it. But I do
want to mention for the record that it has a lot
of endorsements. In economics textbooks, it is
commonplace to observe that vertical
integration of monopolies tends to reduce
consumer prices--for essentially the same
reasons I've given in this column. That
observation wasn't always commonplace, but
it has been for nearly 20 years now--ever
since one Robert H. Bork forcefully called it
to economists' attention. (In my own
textbook, the discussion of this issue is
peppered with quotes from Bork.) In his
recent public statements, he has skirted this
issue entirely. Of course, Netscape pays him a
lot more than Microsoft pays me. |
