Yesterdays announcement that the United States Department of Justice and the Microsoft Corporation have reached an agreement to end their antitrust dispute is good news for everyone except, perhaps, greedy trial lawyers and certain software competitors that propelled this silly case forward these many years.
Microsoft can walk away from this ordeal with its head and principles held high and its substantial competitive demeanor fully preserved. Rather than cave in early to ludicrous demands from the trust busters that it unbundle its web browser, Explorer, from its Windows operating system, or that it split the company in to three separate pieces, Microsoft courageously fought the government and its critics to a legal draw and an economic victory of sorts.
After all, what did the government get after years of legal wrangling, countless briefs and decisions, and the creation of monumental entrepreneurial uncertainty in the computer industry and beyond? Almost nothing.
Under the consent decree, Microsoft is prohibited from engaging in exclusive dealing arrangements with original equipment manufacturers (OEMs), access providers and suppliers, a practice it had all but abandoned anyway. Further, Microsoft is required to share its applications program interface code and allow all OEMs that license its Windows operating system more freedom to display non-Microsoft software applications. Again, Microsoft was firmly moving in this "shared initiative" direction well before the settlement. Finally, Microsoft must charge OEMs published rates and offer them all uniform discounts. But, again, this bit of price meddling on the part of the government is meaningless since Microsoft is left entirely free to determine its own prices and discounts and change them at any time.
In short, the government got virtually nothing from this legal monstrosity of a lawsuit, which is precisely what it deserves. Microsoft, on the other hand, is a clear and decisive winner on the issue that first sparked the lawsuit: the tying of its Web browser to its operating system. Not only is that a bit of efficient bundling, now perfectly legal, but more importantly, there are no specific restrictions on any future bundling of applications. This is the most important innovational development to come out of the settlement and it's strongly pro-Microsoft and pro-consumer.
The Microsoft antitrust case was an economic mistake from start to finish. The entire government argument against Microsoft was essentially a legal brief for Netscape and Microsoft's other disgruntled competitors, who could not offer PC consumers the software value that Microsoft could and did. The antitrust laws prohibit restraints of trade and higher prices, yet it was clear that Microsoft was being prosecuted for precisely the opposite business behaviour for the fact that it had innovated rapidly, increased its outputs, and lowered its prices and the prices of its competitors. It was only a matter of time before someone (a Circuit Court in May of this year) brought the government trust busters to their senses and gave them strong incentives to settle this super-phony antitrust case.
There are striking parallels in this settlement with the way the government ended its other high-profile antitrust suit against computer giant International Business Machines two decades ago. The charges in the IBM case, brought in 1969, were remarkably similar to those in Microsoft's: that IBM was a monopoly because it had a high market share, that it bundled programs and hardware to the detriment of competitors, and that it charged low prices and gave quantity discounts.
The government wanted IBM divested and the trial judge, David Edelstein, like Judge Thomas Penfield Jackson in the Microsoft case, appeared ready and willing to go along. But luckily for IBM and for the computer industry as a whole, the Reagan Administration decided the case was "without merit" and not worth pursuing, and it withdrew the complaint in 1982. Clearly, the Bush administration has come to similar conclusions about the prosecution of Microsoft.
The lesson to be drawn from both of these sorry episodes is that antitrust policy is in need of fundamental reform, if not outright repeal. The fact remains that nearly all antitrust suits are brought or instigated by competitors and are blatantly anti-consumer. Antitrust has a long and sorry history of prosecuting aggressively competitive companies that have innovated rapidly and lowered prices to consumers. And most antitrust "remedies" attempt to restrain (price) competition witness the provision in the Microsoft settlement that requires published rates and uniform discounts or make it easier for less efficient firms to do more business.
Consumers and business people need free, open markets and they need protection from force and fraud. They don't need antitrust regulation and protectionism that hampers innovation and harms society.
Dominick T. Armentano
Dominick T. Armentano is Research Fellow at the Independent Institute and professor emeritus in economics at the University of Hartford (Connecticut). He is the author of Antitrust & Monopoly.
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