August 16, 1999
New Book Reveals the Dynamics of Competition and Antitrust in High Technology
Oakland, CAFew issues in public policy are as divisive as the debate over the use of antitrust in high-technology markets. Although high-tech markets have proven to be among the most dynamic in the world, the current spate of heightened antitrust activism suggests that the federal government believes anti-competitive business practices abound.
In WINNERS, LOSERS & MICROSOFT: Competition and Antitrust in High Technology, the latest book from the Independent Institute, economists Stan J. Liebowitz and Stephen E. Margolis study the question: Why do certain products and technologies become dominant while others fail? Both Research Fellows at the Independent Institute, Liebowitz is Professor of Economics at the University of Texas at Dallas, and Margolis is Professor of Economics at North Carolina State University.
Liebowitz and Margolis critically examine textbook cases of alleged market failurefrom the QWERTY typewriter to the VHS video player to the Windows computer operating systemin which allegedly lesser products achieve or maintain larger market shares than allegedly superior products. They repeatedly find that the claims of market failure are not supported by the evidence, and conclude that the old adageBuild a better mousetrap and the world will beat a path to your doorholds for high technology markets as well as for other markets.
Applying their findings about economic theories of lock-in and network effects to the Internet browser wars and the Microsofts battle with the Department of Justice, Liebowitz and Margolis discover:
- In high-tech, one product tends to dominate a market for a time, but good products replace bad ones as standard-bearers very quickly. Surveys of magazine reviews show Microsofts Excel surpassed Lotus 1-2-3, and Microsoft Word for Windows overtook WordPerfect, only after each had conclusively become the best quality product on the market.
- Microsoft has not acted as a monopolist. It has cut prices even after achieving market dominance and has been involved in fierce competition in every market in which it participates. From 1988 to 1995, Microsoft produced a product in 10 of the 15 major categories of consumer software as defined by Dataquest. In the 5 software categories where Microsoft did not have a product, prices fell by an average of 15%, with several periods of price increases. In the 10 categories where Microsoft had a product, prices fell by 65%.
- Microsoft dominates software markets, not through the exercise of monopoly power or by leveraging its Windows operating system, but only when it has the best products based on independent reviews and evaluations. When its products have been inferior, Microsoft has failed: Microsoft Money has not taken market share from Quicken, which gets the best reviews for personal finance software. In online services, AOLs position has grown faster and larger than that of the Microsoft Network (which consistently scores poorly in reviews).
If only the Clinton Justice Department read WINNERS, LOSERS & MICROSOFT, the American economy would be spared much pain and legal expense, said Wall Street Journal columnist Paul Gigot. Stan Liebowitz and Stephen Margolis really know their stuff, and they can write too.
WINNERS, LOSERS & MICROSOFT is published by The Independent Institute (http://www.independent.org), a non-partisan public policy research and educational organization based in Oakland, California, that sponsors studies on a wide range of economic and social issues. A culmination of 10 years of work, this important book provides the big picture background of the theories involved in the suit involving Microsoft and other high-tech firms, said David Theroux, Independent Institute Founder and President.