Another thought:
Editorials & Opinion
Posted at 12:00 a.m. Pacific; Wednesday, June 7, 2000
Bruce Ramsey / Times Staff Columnist
Monopoly, or ploy by rivals? Case puts antitrust on trial
Microsoft is about to be nailed. But for good reason?
Antitrust has always posed such questions. Its original law, the Sherman Act, forbids the restraint of trade. But what does it mean to restrain trade? Did it restrain trade for Microsoft to flood the world with tens of millions of copies of Windows?
Monopolies restrain trade. Competition encourages it. Competition that "tends to create a monopoly" is bad. But how do you tell one from the other? By the price? The price of Microsoft Windows has come down; it is now selling to computer manufacturers at about $50. Given that Windows has a 90 percent market share, and that the cost of burning one more copy on a CD is a few cents, $50 is hugely profitable. But it's not a high price for what you get. It's cheap.
Nor is it a monopoly. It's almost a monopoly, but most consumers also consider Apple. There are also IBM's OS/2 and Red Hat's Linux. More operating systems would be offered if there were demand for them. There isn't.
So why the Microsoft case? One intriguing explanation is in "Trust on Trial," a book by Richard McKenzie, a professor at the Graduate School of Management at the University of California, Irvine. McKenzie argues in this pro-Microsoft book that the case is an effort by the company's rivals to hobble it in a completely different market.
As McKenzie tells it, the rivals came together in the mid-1990s under the informal acronym NOISE, for "Netscape, Oracle, IBM, Sun and Everyone Else." These companies were all in the market for servers, the computers that manage Web sites and groups of PCs. They had created the server domain and regarded it their turf, and were fearful of Microsoft's stated intentions to invade their turf with Windows NT (which now has 25 to 30 percent of the Web server market).
The companies' strategy was to persuade the Justice Department to attack Microsoft. To do that, they needed a story to tell. They chose Microsoft's predatory attack on Netscape Navigator.
It was a compelling story in some ways, but with an aspect of farce: Netscape Navigator and Internet Explorer were both free. Netscape (now part of America Online) was the first to set its price at zero when delivered online. Microsoft did the same for Explorer. It then tied Explorer to Windows, first by contract and then with software, so that buyers had to take it.
Navigator was clobbered. Consumers were not. They could easily have copies of both (and try to find a difference between them).
The rivals alleged that Microsoft damaged consumers by preventing Navigator from becoming a new "platform" that could have supplanted Windows. It was never clear how this would work. They never did it, though they talked about it a lot.
McKenzie argues that the browser battle was a sideshow, and that the main battle was over their own turf, the server market. The rivals' aim was to neuter Microsoft, making a hard-driving warrior into a tea-and-crumpets competitor.
This is not supposed to be the reason for antitrust laws. Antitrust is supposed to protect consumers by preventing monopoly. But companies, writes McKenzie, have often "used antitrust laws to their own advantage, not to thwart monopoly, but to relieve competitive pressures on themselves."
Courts have sometimes allowed that. In 1897, when antitrust was young, the Supreme Court made a famous statement that a big company with low prices could restrain trade by wiping out "small dealers and worthy men." That view didn't stick until the mid-20th century, when courts struck down mergers that would be routinely approved today. In the 1970s came a counterattack by the "law-and-economics" movement. Robert Bork - who has ironically become a spokesman for Microsoft's competitors - argued in "The Antitrust Paradox" (1977) that government should rely more on markets and intervene only to protect consumers.
The Microsoft case is a return to the more populist view. Companies such as Cisco, Oracle, Sun, Palm and America Online, all of which have large market shares, should note that.
So should investors. Microsoft, fallen from $120 per share to a more earthy $69, is not the only stock to be clobbered in the recent stampede of bears. The whole market was clobbered. It was clearly overpriced, but its decline was triggered by the Microsoft case.
McKenzie's book, written before the market drop, makes an interesting note. Citing a historical study, he writes, "When antitrust enforcement has been aggressive, financial markets have gone into a tailspin (as was the case in 1907, 1929 and 1962.) When enforcement has been lax (in, for example, the 1920s and 1980s) the markets have tended to boom."
It makes one wonder how big a precedent Microsoft will be.
Copyright ¸ 2000 The Seattle Times Company
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