The Case Against The Case Against Microsoft

The Case Against The Case Against Microsoft

March 31, 1999

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The current antitrust case against Microsoft has no policy merit. It substitutes the judgments of court experts, economists and antitrust attorneys for the consensual transactions between Microsoft and its competitors and partners, and even consumers themselves, and ignores basic points of sound law, economics and computer science.

 The rapidly evolving nature of computer science presents both consumers and producers with a standardization/innovation tradeoff. People can, at any time, spend their time and labor on newer, faster machines and more powerful software, but in so doing may sacrifice valuable investments of time and labor on older computer and programs. The question is not whether there is such a tradeoff, but how to make it.

On the one hand, entrepreneurs who generate new ideas and knowledge (for example, Sun Microsystems with its Java programming language) will seek to persuade consumers to give up their money and their familiar desktop programs, claiming that the benefits of switching outweigh the costs of learning how to use new software. On the other hand, companies who have a stake in prevailing standards (for example, Microsoft) will attempt to persuade consumers that it’s easier to stick with what they know. Either may attempt to minimize the costs of adopting the new by supporting existing standards within the context of newer knowledge. This sorting process provides essential information to consumers, increasing their wealth – especially in an economy where information is king.

In Microsoft’s case, the merging of the Web browser and the operating system represents an important part of its effort to survive transcendence of the desktop. But regardless of how the negotiations and interactions between producers and consumers are carried out, the competitive process of the market is the only way to get the correct point in the tradeoff. Only market processes are sufficiently complex and decentralized enough to manage and incorporate the millions of different decisions that consumers make daily. Furthermore, the market is the only decision process compatible with the values of a free society. For the Department of Justice (DOJ) to infer a priori that a particular point in the standardization/innovation tradeoff is optimal—in this case requiring that an operating system be separate from a browser or other applications — over the verdict of the marketplace is at best the arbitrary substitution of some people’s judgment for others, and at worst a perversion of the rule of law.

The other DOJ attack has been to accuse Microsoft of behaving monopolistically. In fact, a review of pricing data shows conclusively that Microsoft has not behaved like a monopoly, even as it became dominant in key software sectors. Below is a table of inflation-adjusted software prices based on advertisements in computing magazines over the last nine years.

Microsoft Software Price History (1990 dollars) Product 1990 price 1999 price % change Excel $320 $228 -29% Excel upgrade $320 $72 -77% Word $213 $228 +7% Word upgrade $213 $57 -73% Windows $125 $137 +10% Windows upgrade $125* $68 -46% *Upgrade not yet available

When viewed in light of the dramatic increase in functionality and power of Microsoft products over the past decade, Microsoft’s pricing behavior becomes even more benevolent.

This case is an example of how government intervention in high-technology industries does more harm than good. Computer scientists, entrepreneurs and consumer advocates everywhere should call for its dismissal.