Microsoft, after all, is the largest and most profitable company in the leading sector of the American economy. Its products are used by hundreds of millions of people around the world. And its largest stockholder, Bill Gates, has become a symbol of the fabulous wealth generated by the revolution in information technology.
What’s more, the case has touched issues that are fundamental to the way so-called New Economy firms operate.
Microsoft became an antitrust target only because its Windows software dominated a traditionally defined market – in this instance, the market for operating systems for Intel-compatible PCs. Yet the underlying economics of information technology virtually guarantee “winner-take-most” outcomes in which almost all consumers decide to use a particular product. If Microsoft can be singled out this way, so can many other successful firms.
Competition in old “bricks-and-mortar” industries largely plays out through small changes in prices and quality. In the New Economy, by contrast, competition is largely felt through innovation. The constraints on Microsoft’s market behavior do not come from the fear that a competitor will sell a similar product for a bit less money, but from the threat of major technological and organizational changes that make its software much less valuable to consumers. Thus the government’s focus on standard measures of competition is misplaced, and the consequences could extend far beyond Microsoft.
Microsoft was accused of “tying” its Internet browser to Windows with the goal of dominating the market. But there are powerful economic and technological incentives for integrating functions into single software packages. Indeed, if integration is an offense, every major software maker is a scofflaw. And since the consequence of integrating what was previously a stand-alone feature is often the ruin of a competitor, every major software maker shares Microsoft ’s vulnerability to similar charges. As do many other high-technology companies.
Much of the evidence against Microsoft consists of e-mails and other documents depicting markets as Darwinian jungles in which only the strong survive. But such bluster is the norm in the New Economy, where most of the executives are young and companies rise and fall at the whim of technology and investment bankers. If intent rather than outcome becomes the standard by which New Economy firms are judged, all of Silicon Valley is in trouble.
At the same time, the Microsoft case symbolizes the government’s renewed vigor in trustbusting. The Microsoft trial was replete with new theories for the New Economy that attempted to justify old theories of regulation. What’s more, the antitrust revival has unleashed a new generation of lawyers on American business. In addition to Microsoft, the federal government has taken to the courts against credit card companies, airlines – even the makers of “intense breath mints.” And in cases such as Microsoft, an army of state attorneys general has joined the federal government.
But despite the obvious significance of this case, it has been treated remarkably casually by the judicial system. The Justice Department took up the cause after heavy lobbying from Microsoft’s bitterest competitors. Once the fight had been joined, though, the department seemed determined to find fault with the company even after its initial claims of anticompetitive behavior were undermined by the decisions of an appellate court. Later, it would propose a remedy seemingly unrelated to the case it presented and to the judge’s findings. Meanwhile, the trial judge made numerous questionable decisions, ranging from admitting hearsay evidence to denying Microsoft the opportunity to present evidence on the consequences of a breakup, that called the court’s credibility into question.
Equally disappointing, the mass media generally seemed inclined to limit their analysis of the trial to questions of who was winning and who was losing. Disappointing, but perhaps not surprising: the range and novelty of the issues–legal, economic, and technological–make this case unusually difficult to understand. Moreover, most of the experts reporters could call on for advice had direct interests in the outcome of the case.
This book represents an effort to cast light on the implications of U.S. v. Microsoft with a mix of analytic essays, Op/Eds and editorials–some widely distributed before, some not. It is not “objective,” if objectivity means presenting every viewpoint with equal weight. Indeed, it is safe to say, all of the writers share a skepticism about the merits of the case against Microsoft. But most also share the sense that it’s long past time to turn down the rhetorical heat: as long as this case remains a touchstone for visceral feelings about big corporations and big government, the only possible winners are Microsoft’s bitterest commercial rivals.
—Paul Beckner and Erick R.Gustafson
Trial and Error
Citizens for a Sound Economy Foundation
(PDF format, 200 p. 1.52 Mb)
If you do not want to download the PDF file, a limited number of books are available. Send an e-mail to email@example.com with your name, phone number and mailing address. Limit one book per email address.