I agree wholeheartedly that potential competition may keep Microsoft's market power in check. The question is--how much check is check?
I think this is the essential issue in the part of the case that goes to whether Microsoft has a monopoly. Microsoft would like the world to believe that all of its markets are perfectly contestable, while the government seems to be arguing that Microsoft's market power is totally "unrestrained" as they put it, and Microsoft could charge any price it wants for Windows.
The truth, I suspect, is somewhere in the middle. Microsoft does have market power *up to* the point where substantial competitors such as an Intel or a Compaq can come into the market. The idea I was spinning out was an attempt to use the government's own theory to identify another source of potential competitors, but at what point that potential threat becomes meaningful, I don't know.
I think it is pretty clear that Microsoft can charge more than the "competitive" price for Windows, whatever that is, as Boulton testified. And if the test is whether Microsoft can charge "significantly" more than the "competitive" price, with "significant" being anything over 5 percent, then . . . well, you get the idea.
One interesting question, which I do not have the answer to, is how "cast in stone" that 5 percent figure is. In other words, how much market power is really necessary to trigger Sherman 2? Why the ability to raise prices only 5 percent? Why not set the threshhold at, say 20-30 percent? And, should it be the same in all markets, regardless of their characteristics?
The other issue I think is important, and Warren-Boulton's statement that I posted before, highlights it in a way that even *I* can't miss it, is whether Microsoft's predatory conduct, as opposed to network externalities, actually caused the deadweight loss in the Windows market that Boulton identified.
In other words, where is the causal link between the harm the government has identified and the defendant's conduct? If I aim a gun at someone and pull the trigger, but I miss and they die of a heart attack for reasons unrelated to my shooting, I can't be prosecuted for murder (attempted murder, perhaps, but not murder).
Same thing with Microsoft. Bill & Co. may be the worst predators in the world, but in terms of causation, their actions may be a tempest in a teapot next to the gale-force storm created by network externalities. So, even though they intended to harm competition, the real source of Microsoft's harm to consumers is the network externalities (natural monopoly), not anything Bill & CO. did.
Now Warren Boulton does point out how, among other things, Microsoft used its market power to force Compaq, for example, to back down in its licensing dispute over the icon. But, there is no connection that I can see made between that conduct which is definitely harmful to a competitor, and harm to competition, i.e., some measurable reduction in consumer welfare. And, at least from my cursory reading, I think the same thing can be said about all of the predatory acts Warren-Boulton identifies.
Obviously, I don't have all the evidence, and maybe you can point out something really obvious that I am missing. But right now, I think the government has a problem on the issue of causation, one that might even haunt them down the road even if the judge finds in their favor on the issue at the trial level.
What do you think, am I barking up the wrong tree here?
My standard problem with economic theorists, especially right wing theorists, is that they never place constraints on how long it takes for market forces to correct things. They only look at asymptotic behavior while we have to struggle in this world.
This is a valid criticism, though it is not limited to "right-wing" theories. It really is a criticism, from economists on both the left and the right, directed to a particular style of analysis used in neoclassical economics.
Just as W. Brian Arthur and others coming from the left who apply modern mathematical theories to economics level this criticism at traditional neoclassical economics based on static equilibrium models, so, of all people, does F.A. Hayek, who is probably the most uncompromising, hard-core, classical liberal, "right wing" economist I've ever read. What is more, his policy prescriptions in favor of free markets do not rely on static equilibrium analysis, so unlike with traditional Chicago style equilibrium thoeries, the criticisms that theory does not deal with reality, assumes equilibrium, etc., do not carry much weight against Hayek's views.
(despite those leaked memos, which now I believe were purposely leaked)
I agree, though, obviously, like you, I can't prove it. |
