FREE ESSAY ON IS MICROSOFT A MONOPOLY

IS MICROSOFT A MONOPOLY

America's century-old antitrust law is increasingly irrelevant to our modern global
information technology market. This law is obsolete, in accordance to the current
Microsoft situation, because in the past there wasn't technology as there is now.
Recently the government has been accusing Microsoft as being a monopoly. Techno-Optimists
claim that efforts by government to promote competition by restraining high-tech firms
that acquire market power will only stifle competition. Some analysts disagree. They
concede that dynamic technology makes it tough to sustain market power. Still, consumers
will want compatible equipment, which will lead them to buy whatever product other
consumers are using, even if the product is inferior. Hence, is Microsoft a monopoly or
not? The range of views extends from the optimists who think that changing technology
removes the need for antitrust, to middle-of-the-roaders who think that antitrust has
always been and still is an important weapon in the government's arsenal. Microsoft is
not a monopoly.
Our world of telecommunications and information technology has brought about many changes
in many fields but new technology has neither extinguished nor revitalized the reason for
antitrust. There are monopolies that the government ought to control. Those are the very
monopolies that the government created itself. It is government that creates monopoly
power by erecting and maintaining barriers to market entry.
In the most recent dispute between Microsoft and the Department of Justice (DOJ),
Microsoft is accused of tying-in an Internet browser into Windows. Microsoft's tie-in of
its browser (Internet Explorer) with its operating system (Windows 95) is a tie-in that
shows no greater threat to competition than the packaging of tires with cars, cream with
coffee, laces with shoes, even left gloves with right gloves. In actuality, tying
arrangements is pro-competitive. Consumers will buy the product that is more appealing to
their needs.
Seven years ago the Federal Trade Commission began its investigation of Microsoft's
market power in the sale of operating systems for personal computers. That investigation
was later joined by the DOJ and pursued vigorously by Anne Bingaman, then head of the
Antitrust Division. The DOJ uncovered one practice it deemed worthy of challenge.
Microsoft licensed its Windows software for multi-year periods on a per processor basis.
Which means that, Microsoft, to help prevent software piracy, insisted that computer
makers pay a royalty to Microsoft for each computer they shipped, whether or not Windows
was installed as the operating system. DOJ was not persuaded by Microsoft's argument that
physical machines can more easily be counted than intangible copies of computer software.
Nor was DOJ convinced that customers might actually favor long-term contracts to guard
against unpredictable price increases and other uncertainties.
This arose the question; did Microsoft exploit its dominant market position by insisting
on unfair licensing arrangements? Of course not. Consider that Windows became the
industry standard because PC-makers thought it was a superior product. An assessment that
surely took into account the entire set of product features. Not only technical features
but also ease of use, quality, price, service, and contract terms. Just like any other
product in the competitive market. Consider that there were no barriers that would
prevent another competitor from driving Windows out as being the market leader. These are
simple conditions that exist in an economic market. Those considerations, apparently, did
not impress the DOJ's Antitrust Division.
After a five-year investigation costing millions of dollars, the Antitrust Division found
little that could be characterized as anti-competitive. But that did not stop the
government. Not only did DOJ file an antitrust suit that caused Microsoft to cancel its
planned release of Intuit (a manufacturer of a popular personal finance program) it also
threatened to halt the release of Windows 95 (Microsoft's upgraded operating system). The
head of the Antitrust Division, Bingaman, was reportedly concerned about the link between
Windows 95 and the Microsoft Network (MSN), an Internet service provider intended to
compete against America Online (AOL). Whenever a user started a Windows 95 system, an MSN
icon appeared. Then one click of the mouse connected the user with the MSN service. That
packaging, according to DOJ, gave MSN an unsporting edge over its online rivals. But a
few more mouse clicks enabled any Windows 95 user to bring up an AOL icon, which would
appear automatically thereafter, at the same time as the MSN icon. Satisfied with its
discovery that MSN's edge could be neutralized, the Antitrust Division abandoned its
threat to block Windows 95. In result, MSN now loses an estimated $200 million annually
providing service to fewer than 3 million customers. On the other hand, AOL, has 9
million subscribers and will add nearly 3 million more when it acquires Compuserve's
consumer business. Although rivals complained that bundling MSN software with Windows 95
would swamp competition, Microsoft's proved them wrong because Microsoft made lesser
money then AOL. Whatever competitive advantage Microsoft may have in the sale of
operating systems, the company has been ineffective in maintaining that advantage.
Consumers, simply, refuse to buy a product they do not like.
However, the DOJ didn't stop pursuing Microsoft. For the Antitrust Division, now headed
by Joel Klein, has raised the issue yet again, this time objecting that Windows 95 and
Internet Explorer are two separate products, not one integrated product. Is the Internet
Explorer a separate product, as Klein claims? Or are the two products integrated, as
Microsoft claims? Because DOJ denies that Windows 95 and Internet Explorer are
integrated, Klein proposed to fine the company $1 million a day until the two products
are unbundled. In its defense, Microsoft claims that Windows 95 cannot perform several
crucial tasks, like word processing, imaging, and drawing unless all Explorer files are
installed. DOJ rejoins that Microsoft did not have to make Windows dependent upon the
browser and could easily have allowed computer manufacturers to uninstall Explorer
without endangering the operating system.
Internet Explorer is more than a bunch of enabling files and more than an applet (a
mini-applications i.e. Notepad). It is an elaborately developed Web browser, capable of
standing alone and, in fact, was originally sold by Microsoft as a full-featured,
independent application. Nevertheless similar products, also tied to Windows, have
survived government scrutiny. MSN, for example, is a full-featured, independent
application, yet DOJ allowed it to be packaged with Windows as a joint product. DOJ's
introduced a new rule that products initially distributed in separate boxes must be
permanently distributed in separate boxes. It is as if air-conditioning, once sold as a
later-installed option in cars, must be forever so sold like that. More importantly,
insists Microsoft, two products can be integrated even if they are not technically
interdependent. The products need not function only in combination, nor be marketed only
as a package. To be characterized as integrated, they just need to be combined in a
manner that creates synergism, a whole that is better than the sum of its parts.
According to Microsoft, that characterization applies no less to the current product
package than it did in the 1980s when operating systems first included software that
allowed interaction with hard disk drives, or later when operating systems began
supporting local area networks. Again there is more proof of Microsoft not being a
monopoly and abiding by the rules of the DOJ.
Today, fax modems and e-mail, once available only as separate products, are essential
ingredients of an operating system. Any system without those functions would be
incomplete. And in an environment where Internet access is very important browser
software is no less essential. That is why IBM and Sun Microsystems, like Microsoft, have
packaged browsers with their operating systems. That is also why IBM, Hewlett-Packard,
Compaq, and other computer manufacturers have bundled both Internet Explorer and its
principal competitor, Netscape Navigator, with Windows 95. Like a competitor to assure
Internet users maximum flexibility. Netscape has itself tied a wide range of other
software products, for example e-mail, security systems, and graphics to its browser.
Such decisions, argues Microsoft, are better left to computer companies than to
government lawyers.
Even if competitor protection were a legitimate objective of the law, there is no reason
for the government to interrupt Microsoft's situation. Rather than badgering Microsoft,
the DOJ ought to be thanking the company for challenging Netscape's near-monopoly in the
sale of browsers and consumers should be grateful to Microsoft for causing Netscape to
reduce its price.
Microsoft chief Bill Gates stated the question Would the DOJ require the New York Times
to eliminate its business section in order to protect The Wall Street Journal? Why should
the answer to that question be any different if the Times were to sell its business
section separately, or if the Times sold 90 percent of the newspapers in New York? Our
antitrust laws were not intended to prop up competitors but to ensure that consumers
benefit from the widespread availability of goods and services at fair prices. Therefore
I truly believe Microsoft is not a monopoly and probably never will be.
Bibliography
1. Bank, David. Why Software and Antitrust Law Make an Uneasy Mix, The Wall Street
Journal, October 22, 1997, p. B1. 
2. Gates, Bill., Why the Justice Department Is Wrong, The Wall Street Journal, November
10, 1997, p. A22.
3. Moore, James F., U.S. v. Microsoft: The Bigger Question, New York Times, January 25,
1998, p. 12-BU. 
4. Train, Kenneth E., Optimal Regulation : The Economic Theory of Natural Monopoly,
October 1991, p231-45
5. Wollenberg, Keith K., An Economic Analysis of Tie-In Sales: Re-Examining the Leverage
Theory, Stanford Law Review 39 (1987): 737, 755-56 
6. Microsoft Under Attack, but Who Is It Hurting? USA Today, October 23, 1997