All Commentary
Tuesday, October 1, 2002

Antitrust After Microsoft: The Obsolescence of Antitrust in the Digital Era

Antitrust Policy Protects Competitors, Not Competition

What’s in a name? Even the simple title, Antitrust After Microsoft, suggests a question: Will there ever be an after Microsoft? Federal antitrust agencies have investigated and prosecuted Microsoft since 1990. The resolution of the federal suit, the focus of the author’s attention, will not lay to rest the actions it encouraged, as entities including state attorneys general, the European Commission, rivals AOL Time Warner and Sun Microsystems, and private class-action plaintiffs join in the fray.

While the title looks to the future, the book’s strength is its description of the present and recent past. David Kopel, director of the Heartland Institute’s Center on the Digital Economy, draws on a wide array of scholarly and business sources to set forth a detailed topography of the terrain in which Microsoft operates.

In describing this terrain, Kopel debunks several myths. For product after product–from operating systems to browsers, office applications, and (largely beyond this book’s horizon) business server software–Microsoft has not behaved like the textbook monopolist, reducing output, raising price, and neglecting quality. Software prices have fallen by 60 percent on average in markets Microsoft entered, but only 15 percent in other software markets. Pure coincidence? Even trial court Judge Thomas Penfield Jackson, who likened Microsoft’s managers to gangsters, found that Microsoft “contributed to improving the quality of Web browsing software, lowering its cost, and increasing its availability, thereby benefiting consumers.”

Microsoft has not, moreover, been able to “leverage” its “monopoly power” in Windows to defeat applications consumers prefer. AOL’s subscriber base dwarfs MSN’s; Intuit’s Quicken leads Microsoft’s Money; RealNetworks’ media software prevails, despite the “bundling” of Media Player with Windows. Microsoft’s Internet Explorer browser only began seriously to erode the market share of Netscape’s Navigator when it was judged technically superior and when Microsoft, unlike Netscape, offered a version that could be embedded in AOL’s access software.

Kopel stresses, too, the competition Windows faces from software and hardware products–such as the Linux operating system, Web-based services, handheld digital devices, and interactive television–that were less widely used, or not even invented, when the Justice Department filed its complaint in 1998. He calls this expansion of the computing universe beyond the desktop a “paradigm shift not unlike the change” from the Ptolemaic to the Copernican view of the universe.

Any such paradigm shift is, however, still unfolding and represents competition to Windows as yet more nascent than “intense.” A limited and, in Kopel’s view, “phony” market definition, including only Intel-compatible PC operating systems like Windows, survived on appeal because Microsoft failed to show that other products were reasonably interchangeable for the same purposes. In this narrowly defined market, Microsoft holds a sufficiently large share to be deemed, for antitrust purposes, a monopoly.

Why does Kopel strive to show that Microsoft is not–or at least does not behave like–a monopoly? Monopolies are suspect, if not evil, in the antitrust world; behavior that would otherwise be legal becomes illegal at the hands of a monopolist. But is a monopoly necessarily bad? Temporary monopolies may flow from market-transforming innovations, intellectual property rights, economies of scale, and network effects (with the value of an item increasing the more it is used by others)-all common in high-tech markets.

Kopel, as his subtitle suggests, entertains a sweeping vision: the end of antitrust. He rests his case on a review not only of United States v. Microsoft but of “antitrust’s greatest hits”: Standard Oil (1911), Alcoa (1945), and AT&T (1982). He does not mention an even more apposite case, United States v. IBM. Reagan antitrust chief William Baxter ended the IBM prosecution for a number of reasons: the cost of the 13-year litigation, the weak causal connection between illegal acts and market share, and the difficulty of fashioning relief that would inject competition but not retard innovation.

But antitrust policy has a life of its own and all too often, as Antitrust After Microsoft well shows, protects competitors and not competition.

Laura Bennett Peterson, an attorney, was an amicus curiae on the appeal of United States v. Microsoft.

  • Laura Bennett Peterson is an attorney and economist in Washington, D.C. She taught antitrust law and torts as an Associate Professor at Suffolk University Law School and was a John M. Olin Public Affairs Fellow and visiting scholar at the Hoover Institution at Stanford University. She practiced law in the litigation department of the Proskauer Rose law firm in New York City and served as a White House and a Treasury Department economist.

  • David B. Kopel is Research Director of the Independence Institute, a public policy research organization in Denver, Colorado, and is an Associate Policy Analyst with the Cato Institute, in Washington. He is also an Adjunct Professor of Advanced Constitutional Law at Denver University, Sturm College of Law.