The Best Microsoft Remedy

The Best Microsoft Remedy

May 01, 1999

Microsoft appears to be seriously considering settlement talks in its antitrust case. While that may temporarily get Microsoft through its private nightmare, settling unfortunately helps strengthen the false idea that antitrust protects consumers rather than rivals. And it lays the foundation for more antitrust nightmares for other companies down the road.

The only consolation may be that some of the trustbuster’s future targets will likely be those competitors most loudly demanding action against Microsoft now.

What a change the past decade has brought. Friends thought me crazy when, as a junior economist back in 1985, I specialized in antitrust. My ears still ring with the protests: "It’s a backwater!" "Reagan eviscerated it for good!" Back then, no one dreamed that the Department of Justice would drag America’s most admired software company into a courtroom brawl that would inspire legions of pundits to weigh in anew on the supposed merits of trust busting, audaciously tossing around the "remedies" their own unaided brains have concluded will make the vast software industry work better.

A prime example is James Gleick’s endorsement in the Feb. 14 New York Times Magazine of Netscape advisor Robert Bork’s proposal that Microsoft be broken up into three companies, "each starting fresh with its own copy of the Windows source code." The alleged benefit would be that, rather than have the world’s dominant operating system sold by a single firm, consumers could choose to buy from any one of three independent sellers. Microsoft’s monopoly would be history. Voila! Problem solved.

This and other proposed breakups and re-shufflings are violent and unnecessary interventions that will do untold damage.

But aside from the outrageousness of these proposals, where do people get the idea that Microsoft’s operating system is theirs to break up? Neither the Eighth Commandment nor the common law have footnotes excusing stealing whenever it supposedly "promotes competition." These alleged "solutions" amount to naked wealth redistribution, selfish and unethical attempts to resolve make-believe consumer harm.

Of course, arguing against government policies because they infringe on property rights – that they steal – is today the intellectual equivalent of taking your date to a tractor pull: a sure sign that you are low brow.

Yet the Windows source code was created by Microsoft’s own investments and effort. The "offense" for which Bork and Gleick and many others advise redistributing Microsoft’s property, at bottom, is that the products Microsoft creates are preferred by too many consumers. Their fantasy is that somehow other companies have a "right" to those customers.

The only lawful justification for breaking up Microsoft would be that the company is a menace to consumers. That Microsoft menaces its competitors is a good thing, not a bad one. But Microsoft is no menace to consumers. It owes its large market share neither to harmful predatory tactics nor to consumers being "locked in" to Windows.

Economist Stan Liebowitz found that Microsoft boasts large market shares only for products whose quality consumers independently rate highly. For other products, Microsoft’s market shares trail those of its rivals. An example is Microsoft Money, a program consumers rate lower than Intuit’s Quicken. The lack of success of Microsoft’s Money belies the allegation that Windows’ dominance guarantees large market shares for Microsoft’s applications software. Ditto for the bundled Microsoft Network online service, which was to have vanquished America Online.

Professor Liebowitz reports two additional facts irreconcilable with the antitrust allegations against Microsoft. First, several of Microsoft’s applications programs enjoy large market shares in the Macintosh market, where Microsoft does not supply the operating system. Second, software prices since 1991 have fallen by an average of 15 percent in markets in which Microsoft offers no products, but by a whopping 65 percent in markets in which Microsoft does offer products.

If Microsoft is hurting consumers, the evidence is strangely absent.

There is a more fundamental reason why breaking up Microsoft would be a great mistake – indeed, why the antitrust case itself is fundamentally ill-advised: No judge, no jury, no battalion of bureaucrats can possibly meddle productively in private industry. The truth of this claim rests on the nature of a market economy – specialization.

Americans are wealthy because each of us is a highly specialized producer. Within Bill Gates’s head is a quarter-century’s worth of specialized knowledge of the software industry. Judge Thomas Penfield Jackson and the DOJ’s lawyers have no such expertise. Unless lengthy legal proceedings are sufficient to transform opposing lawyers into expert software-industry executives, one cannot reasonably believe that lawyers can ever know better than Gates and his employees how to use Microsoft’s resources to produce and distribute software.

Nor are government officials constrained by the same corrective market forces that daily confront Microsoft. If Judge Jackson’s interference in the software industry is mistaken, that error will be enshrined in law, and thus really "locked in"; and Microsoft’s rivals who benefit will work day and night to keep it that way. But if Gates errs, he will quickly be obliged by market forces to correct his ways. Rivals nipping at its heels is the reason that Microsoft competes so vigorously.

Microsoft should compete freely, uninhibited by the nonsensical, self-serving "remedies" trumpeted by competitors. Cutthroat rivalry among computer entrepreneurs for consumers’ dollars – not slicing, dicing, and coerced settlements courtesy of Washington – should alone organize the software industry.

Donald J. Boudreaux (dboudreaux@fee.org) is President of the Foundation for Economic Education and a CEI Adjunct Scholar.