To my knowledge, INTC does not produce any desktop or sever OSs, therefore is not a competitor to MSFT in any way.
OK, Regimond, I'll take the bait. You'd better hope for the sake of your Beloved Microsoft that you are wrong.
Just for the sake of intellectual amusement, let's explore the line of thinking that says Intel could in any way affect whether Microsoft has a monopoly in the OS market.
First of all, some basic antitrust ideas, taken, for sake of convenience, from Judge Kozinski's opinion in the Ninth Circuit case of U.S. v. SYUFY ENTERPRISES, 903 F.2d 659 (9th Cir. 1990), but which anyone should be able to find in any antitrust textbook. Anyone who is interested can find the decision at caselaw.findlaw.com
The case has no factual similarity to Microsoft's, but I'll use Judge Kozinski's words to explain the basic principles, because he explains them far better than I ever could.
The purpose of antitrust law is to preserve competition, not protect competitors. Monopoly power is the power to exclude competition or control prices. As Judge Kozinski explains, the judicial role is a limited one:
"When competition is impaired, producers may be able to reap monopoly profits, denying consumers many of the benefits of a free market. It is a simple but important truth, therefore, that our antitrust laws are designed to protect the integrity of the market system by assuring that competition reigns freely. While much has been said and written about the antitrust laws during the last century of their existence, ultimately the court must resolve a practical question in every monopolization case: Is this the type of situation where market forces are likely to cure the perceived problem within a reasonable period of time? Or, have barriers been erected to constrain the normal operation of the market, so that the problem is not likely to be self-correcting? In the latter situation, it might well be necessary for a court to correct the market imbalance; in the former, a court ought to exercise extreme caution because judicial intervention in a competitive situation can itself upset the balance of market forces, bringing about the very ills the antitrust laws were meant to prevent. See R. Coase, The Firm, The Market, and the Law 117-19 (1988); R. Posner, Economic Analysis of Law 324-25, 338-39 (3d ed. 1986).
(Note the cite to Posner, now a judge on the Seventh Circuit, but at that time a leading professor of law and economics at the University of Chicago).
The distinction between preserving competition and protecting competitors is a crucial one. As Judge Kozinski points out:
". . . many legitimate market arrangements diminish the number of competitors. It would be odd if they did not, as the nature of competition is to make winners and losers. If there are no significant barriers to entry, however, eliminating competitors will not enable the survivors to reap a monopoly profit; any attempt to raise prices above the competitive level will lure into the market new competitors able and willing to offer their commercial goods or personal services for less."
The italicized part is extremely important because it describes the importance of potential, as opposed to actual, competition, to antitrust analysis.
And, what kind of barriers to entry are significant? Again, in describing the facts of the case, Kozinski provides at least a partial answer:
"The government concedes that there are no structural barriers to entry into the market: Syufy does not operate a bank or similar enterprise [1] where entry is limited by government regulation or licensing requirements. Nor is this the type of industry, like heavy manufacturing or mining, which [2] requires onerous front-end investments that might deter competition from all but the hardiest and most financially secure investors.12 See R. Posner, supra p. 663, at 290. Nor do we have here a business dependent on [3] a scarce commodity, control over which might give the incumbent a substantial structural advantage. Nor is there [4] a network of exclusive contracts or distribution arrangements designed to lock out potential competitors. To the contrary, the record discloses a rough-and-tumble industry, marked by easy market access, fluid relationships with distributors, an ample and continuous supply of product, and a healthy and growing demand. It would be difficult to design a market less susceptible to monopolization."
On the question of ability to set prices, Kozinski concluded in that case that Syufy didn't have it. Kozinski also argued that, without the power to exclude competition, a potential monopolist likely would not have the power to set prices:
"More fundamentally, in a free economy the market itself imposes a tough enough discipline on all market actors, large and small. Every supplier of goods and services is integrated into an endless chain of supply and demand relationships, making it dependent on the efficiency and goodwill of upstream suppliers, as well as the patronage of customers. Absent structural constraints that keep competition from performing its levelling function, few businesses can dictate terms to customers or suppliers with impunity. It's risky business even to try. As Syufy learned in dealing with Orion and his other suppliers, a larger company often is more vulnerable to a squeeze play than a smaller one. It is for that reason that neither size nor market share alone suffice to establish a monopoly. Without the power to exclude competition, large companies that try to throw their weight around may find themselves sitting ducks for leaner, hungrier competitors. Or, as Syufy saw, the tactic may boomerang, causing big trouble with suppliers."
Thus, according to Kozinski, as set forth in the Syufy case, the power to exclude competitors is crucial to monopoly power, while the power to set prices is secondary, more than likely a consequence of the power to exclude.
Now, as you correctly point out, Intel does not currently market an operating system, so it quite clearly is not an actual, current competitor of Microsoft in that market. However, I very strongly suspect that the issue of whether Intel is a potential competitor of Microsoft in the OS market is a good deal more complex. For starters, Intel is probably the one company on the face of the planet with the market position and resources to compete effectively against Microsoft in the OS market. It controls the platform to which Microsoft has to write Windows, and its control of the distribution of PC processors provides an ideal position it could leverage to distribute an OS which competes with Windows.
(Note the similarity to Netscape's position vis a' vis Microsoft -- Netscape used to have 85-90 percent of the browser market until Microsoft leveraged the platform Netscape had to write to in order to alter that market share. I wonder how many arguments Netscape or DOJ might be able to come up with against Microsoft apply with equal force to Microsoft's position vis a' vis Intel.)
Right now, Intel and Microsoft are partners, but Dvorak's article is important because it suggests that the partnership is starting to fray, or at least that the partners' interests are starting to diverge, and, in my mind, that raises antitrust implications.
The pieces to the puzzle I do not have are:
(1) whether Intel has the technical ability to write an OS within a reasonable amount of time in order to compete with Microsoft. Obviously, there are different levels of software language, ranging from assembly language to C++. But is writing the code that goes on the microprocessors that Intel already sells a part of that continuum? If it is, and if skills used to write microprocessor code are transferable to writing the kind of higher level code that goes into an OS, then the barrier to Intel's entry into Microsoft's OS market is a lot lower than if the skill set for writing OS code is radically different.
I must say, however, that I am skeptical because I've seen a number of pieces in the press suggesting Intel is not very competent at writing software for higher-level programs like an OS.
(2) whether Intel really has the incentive to enter Microsoft's OS market, and, if not, why not. If it's a function of pricing and lack of potential profit due to Microsoft keeping the price low, then I don't see an antitrust problem. But if there is some other barrier, like the four outlined above, then this theory is a DOA/non-starter. Plus, going back to Judge Kozinski's statement about when judicial intervention is appropriate, Intel's partnership with Microsoft may make it unlikely that Intel will enter the OS market within a "reasonable" enough amount of time to forestall judicial intervention.
I am also skeptical for practical reasons. First, lawyers and judges generally do not think of the code part of the microprocessor and the OS as parts of a software continuum. Rather, they perceive the microprocessor and OS as totally separate products. Assuming Microsoft goes down this route, it's got its work cut out for it educating the bench and bar. Second, if it's obvious enough a theory for me to figure out, then DOJ's got covered for sure. It will be interesting to see what DOJ has to say if Microsoft goes down this path.
But this is the first even halfway convincing argument that I've seen or been able to come up with to suggest that, contrary to universally accepted dogma, Microsoft does not have a monopoly (or, more precisely, monopoly power) in the OS market.
I'd really like to hear what others think about this argument, especially on the technical issue of whether Intel has the ability to write and effectively distribute an OS to go with its microprocessors, and, if so, on the historical/economic issue whether there are any circumstances in which Intel would actually do such a thing. |
