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Were the antitrust penalties against Microsoft sufficient? As Chapter 9 points out, economists generally favor a presumption that markets generate good outcomes, from the point of view of the average American. Competition between sellers in a market is a key mechanism for producing those good outcomes. But what happens when the number of sellers in a market is too small to generate effective competition? In the extreme case, what happens when a monopoly dominates a market? One tool of government intervention that seeks to avoid bad outcomes in these situations is antitrust law, discussed in this chapter. Among other things, antitrust law limits the ability of firms to form monopolies. If a monopoly forms, it limits the exercise of monopoly power by holding monopolies up to higher standards than other firms. One monopoly that has run afoul of antitrust laws in the United States is the Microsoft Corporation, a producer of software. Their most famous product is Windows, an operating system for personal computers. Nearly all IBM-compatible personal computers in the United States use the Windows operating system, so Microsoft is a monopolist in this market. The Start of the Case The antitrust case against Microsoft, the one that is the subject of this project, was filed against Microsoft by the Department of Justice in 1998. It charged a) that Microsoft did indeed have a monopoly in the market for operating systems, b) that Microsoft had used unreasonable conduct to protect and extend that monopoly, and c) that Microsoft harmed users of personal computers by reducing innovation. A crucial part of the case had to do with browsers, computer programs used to view the World Wide Web. The first widely used browser was produced by a company called Netscape. Their browser was called Netscape Navigator. Back in 1995, Microsoft became very concerned about this browser. They got concerned because Netscape was encouraging other companies to write programs that would work with Netscape Navigator, expanding its capabilities. Since Netscape would run on many operating systems, not just on Windows, Microsoft was worried that a browser that could do many things would lessen people's need for their operating system. The Ruling in the Case The case worked its way through the legal system, reaching the Court of Appeals in June 2001. The Court of Appeals ruled on some parts of the case and sent part of it back to another judge, Colleen Kollar-Kotelly. In November of 2001, the Justice Department and Microsoft reached an out-of-court settlement in the case. Kollar-Kotelly released her final ruling in November 2002, a ruling which mostly accepted the out-of-court settlement. The outcome of the case is that Microsoft was found to be a monopoly, one that violated antitrust law by doing a number of things, including getting PC manufacturers to only install Microsoft's browser, Internet Explorer, in new computers before they shipped. Another action that was found to be illegal was pressuring internet service providers to only distribute the Internet Explorer browser. In the out-of-court settlement, Microsoft agreed to never threaten computer makers or internet service providers. They also agreed to treat computer manufacturers and software producers in a more even-handed way. Finally, they agreed to the creation of a 3-person Technical Committee to oversee their compliance with the agreement. The agreement reached will expire in five years, unless Kollar-Kotelly renews it. Important Questions
Primary Sources: Documents Directly a Part of the Case The Antitrust Division of the U. S. Justice Department is one of the key agencies enforcing antitrust laws. The first link is to the Division's web site for documents related to the Microsoft Case. You might, in particular, look at the first documents with the word "compliance" in them. They will update you on how well Microsoft is living up to the terms of the out-of-court settlement and Judge Kollar-Kotelly's final judgment. The second link is to a brief filed in the antitrust case in 2000 by a well-know economist, Paul Roemer. It provides good background on the point of view of Microsoft's critics. The District Court of the District of Columbia is where Judge Kollar-Kotelly works. This link is to documents related to the case, beginning with the time she took jurisdiction (2001). In particular, you might look at the "Memorandum Opinion filed 11/01/02." This is her explanation of why she accepted, in large part, the out-of-court settlement. You might also look at the "Final Judgment filed November 12, 2002," which is her statement of what Microsoft must do. Part of the Microsoft case (not mentioned in the summary above) was complaints against Microsoft by various states in the United States. These states have standing in the case and are part of the enforcement of the final judgments in the case. Their web site is called Coordinated State Enforcement of Microsoft Antitrust Judgments. Visit it to learn about the terms of the settlement and its enforcement. The Microsoft settlement included the creation of a Technical Committee to oversee their compliance with the settlement. Visit the Technical Committee's web site to better understand their role in the case. Secondary Sources: Analysis and Commentary on the Case The American Enterprise Institute for Public Policy research is "dedicated to…strengthening the foundations of freedom," including limited government and private enterprise. To find their work on the Microsoft case, click on the link below and search their site on "Microsoft." Be patient, their search engine may be slow. The second link is to a favorable analysis of Judge Kollar-Kotelly's decision in the case, one written by Robert W. Hahn. The Brookings Institution supports research and analysis on public policy issues. Together with the American Enterprise Institute, they have a Joint Center for Regulatory Studies. The work of that Center includes research on antitrust policy. Visit the center at the first link below. Search on "Microsoft" and "antitrust" to see materials on the case. The second link is to a web page on a speech by Steve Balmer, CEO of Microsoft, at the Center in November 2002. He talks about how Microsoft will respond to Kollar-Kotelly's final ruling. Click on "Complete Transcript" to read a transcript of the speech. Balmer begins to talk about the case on page 7. The Tech Central Station provides news, commentary, and analysis, especially on issues related to technology. The site is sponsored by corporations that share the site's faith in the ability of free markets and technology to improve people's lives. The first link is to the site's home page. Try searching the site on "Microsoft antitrust." The second link is to an article by James K. Glassman, approving of Kollar-Kotelly's final ruling. |