In Defense of the Microsoft Monopoly

Ironic, isn't it? Ten years after the Berlin Wall came crashing down, the vision it stood for is being recast--this time as a judicial house of cards. And it's all happening in a country where the magnificence of a diametrically different vision is on display.

The company is Microsoft, the country is the United States, and the clash of visions pits social planner against the market system. In May 1998, twenty states charged Microsoft with monopolistic foul play. The thematic centerpiece of their suit--with multiple spin-off charges--was that Microsoft leveraged its power in the operating systems market to aggressively increase the market share of its browser, Internet Explorer. Round One opened in District Court, the honorable Judge Thomas Penfield Jackson presiding. It closed to the brazen bell of his finding of fact on Halloween. The date was eerily appropriate for the 207-page rant for several reasons--ghoulish economics, the monstrous presumptuousness of a philosopher king and a downright creepy disregard for the law.

The full extent of His Majesty's spoof becomes apparent only after examining the rationale of American antitrust law. The cornerstone of that framework, the Sherman Antitrust Act, does not prohibit monopoly per se and Sherman took great pains to point that out before Congress when debating the issue. Monopolies attained through continued innovation are totally legitimate. The law targets only those extended through predatory pricing, superfluous tie-ins and a handful of other shady practices that rely not on market merit but market power. Such monopolies invariably hurt the consumer, either by raising prices above the market level or destroying competition that could have otherwise flourished.

What type of monopoly is Microsoft? A look at the prices is rather edifying, so it's a pity His Majesty didn't look a little longer. When Windows 3.0 first came out in April 1990, a copy went for $205. The initial price of Windows 98, on the other hand, was only $169. Lowering cost to the consumer, it seems, just doesn't correlate with market virtue anymore. Although, in all fairness to Jackson, we are talking about only an 18 percent reduction.

Has Microsoft resorted to "predatory" behavior in an attempt to log competitors out of the market? One would think so, especially since the crux of His Majesty's edict is that "Microsoft effectively eliminated Netscape as a platform threat." But the charge holds up only in virtual reality, at best. Netscape still enjoys a comfortable 42 percent of the browser market and that figure will increase to a snugly hegemonic 58 percent after its acquisition by AOL is complete. Then again, Jackson's understanding of the word "eliminate" could just be more rich and nuanced than Webster's.

Well, what about bundling Explorer with Windows in a blatant attempt to leverage operating system power over into the browser market? According to an appeals court, which in 1998 overturned Jackson's own injunction against the bundle, Microsoft's tying "combines functionalities ... in a way that offers advantages unavailable if ... [the products are] bought separately and combined by the purchaser." The appeals court is higher up on the judicial food chain than Jackson's district court and it did have three judges examine the issue, as opposed to only one. But that was last year. His egregiously embarrassing computer literacy problems in the courtroom notwithstanding, Jackson simply knows best. (Although I'm praying he doesn't direct the anti-bundling animus against ruthless exploiters with the temerity to bundle such things as salt and pepper or cars and tires.)

More than anywhere else, Jackson's Manichaean analysis crashes in its appraisal of entry barriers in the operating systems market. They are not nearly as high as he believes. Given the lightning speed with which information technology today is generating novelty, recent developments threaten not just to lower purported barriers but shatter them entirely. Java, a universal language being developed by Sun, should drastically decrease dependence on Windows. Internet servers that allow surfers to bypass Windows are also on the rise. As one venture capitalist at Accel Partners puts it, "in the past six months, we have not seen a business plan for a conventional packaged software application." Sounds surprising, perhaps, but how else could a single student from Helsinki hobble together a few thousand lines of code that turned into Linux, an operating system with millions of users currently being shipped on IBM and Compaq PC's? The only real barriers to entry in the operating systems market are a mind, a modem and, arguably, a garage.

Regardless, maybe successful companies should just adopt the following enlightened policy: be nice to competitors on e-mail. After all, Microsoft was so darn pugnacious towards Netscape in some of its internal memoranda! Pretend the market is a touchy-feely place. Sanitize the weeping and gnashing of teeth that economist Joseph Schumpeter identified as crucial to a market's quintessential process of "creative destruction." And above all, be sensitive--you should be well within your rights if you do all that, correct?

The only legal guideline congealing from Jackson's royal hemorrhage is that benefitting consumers through constant innovation in a fluid market is wrong. And this blatantly contradicts the rationale of antitrust itself. So much so, in fact, that it becomes quite clear His Majesty's inquest is not about delineating general guidelines. It is about destroying the very idea of general guidelines.

That is what is at stake in this finding of fact. The particular repercussions of his His Majesty's anti-corporate-screed-masquerading-as-law notwithstanding, what is most profoundly disturbing is his implicit rejection of law as a framework within which free moral agents can make informed choices. Given his ruling, how can any company of the future know in advance when improving product A is "monopolistic?" Or when serving the consumer is "predatory?" It cannot. And the moral bankruptcy of such schemes is, therefore, akin to all ex post facto legislation. It is no different from any other attempt to punish someone today for an action performed legally yesterday.

Such a vision is nothing more than an atavistic embrace of law as the institutionalization of whim. It leads to a view of human activity repugnant to the one held out by our Constitution and abhorrent to any conception of dignity. In downgrading men and women to the playthings of dictatorial caprice, it denies us our free will. Ten years after the Berlin Wall collapsed, we might pause to consider whether a vision like that should stand.

Boleslaw Z. Kabala '03 is a first-year living in Matthews Hall.