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To: Charles Tutt who wrote (23707)	11/30/1999 10:41:00 AM
From: Daniel Schuh	Read Replies (1) \| Respond to of 24154

I've always been confused by the "natural monopoly" defense of Microsoft. The traditional natural monopolies were the regulated utilities, a status I'd assume Microsoft doesn't aspire to. Though it may fit there, under the "essential facilities" theory, too. The new wave "natural monopoly" theory is Brian Arthur, network effects, increasing returns, etc.; that analysis also tends not to favor Microsoft. In the middle, we have the Chicago School, I guess, which says let'em be, more or less. I'm not sure exactly how much legal standing the Chicago School has, it certainly has adherents on the bench, but I don't think that interpretation is enshrined in case law as the one true view of antitrust. I'd give that school more weight if I understood how, exactly, the "market" demanded that the world standardize on a self-destructive OS like Win 9X. But then, I've always been puzzled by the integrity and uniformity of the Windows experience, before I had it firsthand, I was a lot more circumspect about the inevitable Microsoft world takeover. Cheers, Dan.

To: Charles Tutt who wrote (23707)	11/30/1999 11:47:00 PM
From: Gerald R. Lampton	Read Replies (1) \| Respond to of 24154

Did the Judge include a finding that Microsoft was a "natural monopoly?" No. But he did find that Microsoft's market power derives from network effects and the "applications barrier to entry." Those findings constitute the factual basis for the finding that Microsoft is a natural monopoly. The DOJ and states did not argue otherwise; their claim is that Microsoft illegally "maintained" its natural monopoly by using predatory tactics to eliminate competition. If Microsoft is not a natural monopoly, why consider it to be one, or analyze the case in those terms? Because it has implications for the kinds of remedies you impose. Specifically, breaking up a natural monopoly would decrease efficiency and reduce consumer welfare in the short run. I doubt even W. Brian Arthur would advocate breaking up Microsoft. Conduct remedies might or might not work in the normal case, in the short run. In the long run, as markets change, they, too, lead to inefficiencies. In the case of Microsoft I think they would be totally ineffective and would require a level of government intervention inconsistent with a market economy, especially if the same kinds of remedies are imposed in a growing number of other cases as the portion of the economy subject to network effects expands. It's also important to keep in mind that having a monopoly due to superior products and competitive practices is not against the law. So, I would argue that, to the extent Microsoft's market power is the result of the applications barrier to entry, rather than Microsoft's conduct, Microsoft's conduct is not actionable because outlawing it would not reduce Microsoft's market power or increase consumer welfare. Even telephone and electric power utilities are no longer necessarily considered natural monopolies You are confusing the phenomenon itself with the remedy proposed to deal with it. Technology may or may not have changed the characteristics of the telecommunications market, but many of the people who say that telecom "is no longer a natural monopoly" are really saying it should not be regulated as such monopolies have traditionally been regulated. , so why would X86 operating systems be one unless found to be so after a presentation of evidence? I would argue that the evidence has been presented, and factual predicate for such a finding has, in fact, been made. All of this is JMHO, naturally.