Who Stole Microsoft?

What distinguishes the U.S. postal system from Staples, Toys “R” Us, Rockefeller’s Standard Oil, Sara Lee, Eastman Kodak and Microsoft?

The former company is a monopoly; the latter are not, but have been so accused in accordance with antitrust legislation. The U.S. Post Office is a monopoly because its market dominance is derived not from what it offers consumers, but from an exclusive grant of government privilege. As monopolies, the postal service and the local gas and electric companies do not compete or engage in a voluntary exchange with consumers. Rather, they control the market by forcibly prohibiting others from entering it.

Extend this premise, and you arrive at the natural conclusion that in a free market where voluntary exchange between consenting adults is the guiding principle in trade, there can be no monopoly other than that created by government. How is it then that Microsoft is being hounded for being a monopoly? This is made possible through legislation that frames as predatory the process whereby an innovator captures a large market share. This despite the fact that the only way to capture a large portion of the market is by dint of government legislation, as the post office does, or through offering good service for a very low price, as Microsoft does.

Recall that as a competitive strategy, Microsoft had bundled its Internet Explorer with its Windows operating system. It did so for free, and with the aim of outdoing the competition. Microsoft then licensed its operating system to PC manufacturers with the proviso that they take free of charge its Internet Explorer. Fully within its legal right, Microsoft asserted copyright to prevent any reconfiguration of its operating system. Were users prohibited from loading Netscape’s Navigator or any other Intel-compatible operating system on to their PCs? Of course not. Could Microsoft have prevented PC makers from installing competitive products? Absolutely not. That Netscape lost revenue is evidence of nothing more than Microsoft’s competitive edge and Netscape’s failure to offer the consumer a similar deal. Netscape then ran to Uberbureaucrat Joe Klein of the U.S. Justice Department for a remedy.

Clearly Microsoft has arrived at its considerable market share by offering the consumer more total product for the least cost. Let’s imagine, however, that there was a way to eliminate competition in a free market other than by government decree. Such an evil empire could restrict its sales with the intent of raising prices and doing some serious profiteering.

But had Microsoft charged a high price for the browser it tied gratis to its Windows operating system, its rivals would have been thrilled, and well-positioned to take such a market by storm. Incidentally, flexible antitrust law would have nabbed the company for predation under this contingency as well. It so happened Microsoft did the opposite: It gave away the browser. It was then that Judge Jackson, in a decision more voodoo than veracious, proceeded to declare Microsoft a monopoly.

The other mischief Microsoft might have attempted so as to drive and keep out competition would have been to drop its total product price even lower. But to be truly “predatory,” Microsoft would have to have kept it there over time, eventually going bust. For the duration that it managed such a Kamikaze feat, its rock-bottom prices would be benefiting consumers, which goes to show that, government monopolies excepted, there is no such thing as a predatory price.

Despite a 1998 court decision that magnanimously upheld Microsoft’s right to tie the two products, coupling the browser to Windows, according to Judge Jackson’s Conclusions of Law, was not only incontrovertible proof of a monopoly and harmful to consumers, but part of Microsoft’s “larger campaign to quash innovation that threatened its monopoly position”.

What of the objection then that by bundling its Internet Explorer with its Windows operating system, Microsoft failed to offer the consumer a choice? What of the contention that it is attempting to freeze out other suppliers, as well as prohibit consumers from coupling one of these Microsoft products with that of one of this companies’ competitors? One problem with this line of reasoning is that it attempts to discern the motives of businessmen. This is always a risky procedure, too uncertain to support a judicial finding of wrongdoing. Another more grave difficulty with this charge is that it is open to a reductio ad absurdum: were this act to be made the basis of unlawful behavior, we would have jails overflowing with white-collar victimless criminals.

For example, it is impossible to purchase a McDonald’s burger coupled with a Wendy’s bun; neither fast food establishment will make such a concoction available. The consumer who wishes this particular combination of goods will just have to visit each store, buy a burger from each, toss out the McDonalds bun and the Wendy’s burger, and eat whatever remains. Similarly, it is impossible to purchase a Ford chassis and a BMW motor. Those who wish to drive in such an unusual mixture will be forced to buy one of each of these automobiles, and fashion this amalgamation for themselves. However, if we are going to penalize Microsoft legally on this ground, we must also include in the indictment all fast-food purveyors, all automobile companies, all TV manufacturers (some consumers may wish the SONY innards and the RCA tube or vice versa), all publishers (some readers may want the cover of the bible and the inner pages of Lolita or Playboy, or, who knows, vice versa), etc. In short, the indictment would have to catch any entrepreneur who has irked someone with the way he has configured a product.

Antitrust legislation considers a large market share or a concentration in the market to signify both monopoly and predatory practices on the part of a company. As such, the antitrust chimera is based on discredited theories about competition. Relying as it does on a model of ideal or perfect rather than rivalrous competition, the legislation aims at a market neatly carved among competitors.  Judge Jackson’s circular reasoning culminated in his asserting that the fact Explorer is not “the best breed of Web browser” is further evidence of Microsoft’s predatory behavior. If the proliferation of bad products on the market is an indication of a lack of fair competition, we ought to sue rapper Puff Daddy on behalf of Johann Sebastian Bach.

©2001 By Ilana Mercer
A version of this column was published in The Calgary Herald, May 11, 2000.

Parts of the column are a product of my collaboration with William Anderson, Walter Block, Thomas DiLorenzo, Leon Snyman and Christopher Westley on the paper, “The Microsoft Corporation in Collision with Antitrust Law.” The paper appeared in the Journal of Social, Political, and Economic Studies, Vol. 26, No. 1, Winter, 2001.