Why Janet Reno vs. Bill Gates Is Good for Capitalism
STELZER, IRWIN M.
Why Janet Reno vs. Bill Gates Is Good for Capitalism In Praise of Antitrust Law By Irwin M. Stelzer Free-market pundits in Washington have leapt to the defense of Microsoft in its shootout with...
...And capitalism will survive either way...
...Rather than automatically line up on the side of Microsoft, they should ask themselves just how capitalism is supposed to work...
...Are you against allowing Gates to give away a browser...
...But in the long run, the benefits of free markets will be undermined if antitrust law erodes...
...As Gates himself describes it, "When a PC manufacturer like Compaq, Dell or Gateway chooses to license Windows, it agrees to ship the whole operating system, including Internet Explorer...
...But the outcome of this case is far less important than the general proposition involved: A monopolist should not be allowed to leverage his way to dominance in a related market...
...The manufacturer, in other words, cannot get Windows unless he agrees to ship Microsoft's browser, dubbed Internet Explorer, along with it...
...nothing in the antitrust laws would deprive it of the benefits of its business acumen...
...Businessmen profess a love of free markets but often subvert them by weakening the force of competition, by conspiring with one another, or by engaging in practices related not to a desire for greater efficiency but to an effort to gain a monopoly position...
...This is, Gates says, just the way he wants it...
...Maintenance of an open-access, competitive market is especially important in the case of software products, for two reasons...
...if the seller has sufficient market power to enforce the tie...
...Judge Learned Hand long ago ruled that "the successful competitor, having been urged to compete, must not be turned upon when he wins...
...The antitrust laws stand between them and the attainment of that goal...
...Instead, it has hitched its browser, also available as a separate product, to its Windows operating system...
...All of this is standard antitrust law...
...This is the grim alternative to maintenance of a competitive market...
...Unless you believe that Bill Gates's philanthropic proclivities include a desire to give away browsers which he has undoubtedly spent a healthy sum to develop, you must believe that customers will sooner or later pay...
...This is crucial to the preservation of a broad constituency in favor of capitalism...
...Equally important, by preserving open markets, the antitrust statutes diffuse private power and preserve maximum opportunities for individual enterprise...
...After all, Attorney General Janet Reno herself announced the latest legal move against Microsoft, and the Justice Department has hardly covered itself with glory under Reno's reign...
...Shenefield, of The Antitrust Laws: A Primer (AEI...
...it stimulates innovation...
...When I posed this analogy to one of Microsoft's defenders, he quickly replied, "Ah, but in the case we are talking about, the cheese is free...
...it allocates resources to their most efficient use...
...Most important, the case should not cause friends of the free market to forget that antitrust laws deserve their veneration, because they keep government's role as a regulator of industry to a bare minimum...
...Good thing...
...Having invented a mousetrap so good that it commands a dominant position, Microsoft now says to the manufacturers, who would be out of business without a license from Microsoft, "You must buy our cheese...
...By forcing producers to compete for consumers' favor, the antitrust laws maximize consumer welfare...
...It is the reason those who want to limit the role of government in economic affairs should enthusiastically endorse efforts to preserve the competitive system...
...A disclaimer: Not being a lawyer, I have no idea whether Microsoft is in technical violation of its 1995 consent decree, as Justice now maintains...
...it forces firms to produce goods of the highest quality at the lowest price...
...None of this is to say that the facts of the Microsoft case support the Justice Department: Microsoft argues that the charges are "baseless" and "perverse," and it may carry the day with presiding federal judge Thomas Penfield Jackson...
...Bill Gates Is Good for Capitalism In Praise of Antitrust Law By Irwin M. Stelzer Free-market pundits in Washington have leapt to the defense of Microsoft in its shootout with the Justice Department's antitrust lawyers...
...Bill Gates's Microsoft, for its part, is a highly dynamic enterprise that has helped to change how America creates, transmits, and processes information...
...if you have to buy both products to get the one you need...
...But now Microsoft has another, and separate, product, a browser that lets you poke around the Internet...
...Whether that browser is better or worse than competing products, most notably Netscape's, I do not profess to know...
...But neither Reno's failings nor Gates's achievements nor the massive lobbying effort that Microsoft has unleashed on Congress and the media should be allowed to obscure a few simple facts about this case...
...But one need not be a lawyer to conjecture that Microsoft possesses substantial market power: Its Windows software runs more than 80 percent of all the PCs in Irwin M. Stelzer, director of regulatory studies at the American Enterprise Institute, is the author, with J.H...
...If Microsoft achieved its enviable position as the result of its own efficiency and innovative skill (a proposition that many of its competitors deny, but they would, wouldn't they...
...Antitrust laws were enacted to maintain that open marketplace, or, as Gates himself puts it, "to ensure that consumers benefit from the widespread availability of goods and services at fair prices...
...and if the tying arrangement has more than a trivial effect on commerce...
...Nothing wrong with that...
...Presumably, if left free to do so, consumers will decide who wins and who loses the race to become the dominant browser provider...
...Most of them see the government effort to force a change in Microsoft's business tactics as yet another example of Washington's heavy hand crushing Adam Smith's invisible hand...
...That principle will stand...
...His decision will come after both parties have had their day in court...
...It is now widely seen as a shell and a shill—a shell of its former professional self, and a shill for the president...
...So far, so good for Gates...
...It will take litigation or the credible threat of it to discover all the facts...
...They will make their decision based on the price of the product and its features— just as they decide which car to buy and which brand of jeans best suits them...
...When Ralph Nader jumped on the bandwagon with a two-day Microsoft-bashing conference earlier this month, the free-market folks were only confirmed in their views...
...America, and that might well confer monopoly power on it...
...But if the Justice Department is correct, Microsoft does not want to take the chance of losing in a one-on-one battle in the marketplace...
...Government agencies sprang up to set prices, determine the appropriate level of profits, set standards of service, and review investment decisions...
...For if the notion takes hold that the sheer market power of a business confers upon it the right to bar entry to competitors or squeeze them out, regardless of their efficiency or innovative prowess, then the demand for government regulation will increase...
...And that means enforcing the antitrust laws...
...Indeed, history shows that unregulated monopoly power is not acceptable in a democratic society...
...Second, the Justice Department contends that "unfettered competition among Internet browser products could lead to development of a computer environment in which business and consumer applications would work regardless of which operating system was installed on the PC...
...They will do so either as part of the price they pay for Windows and its bundled browser, or in a slower pace of innovation should the browser come to occupy a market position as overpowering as that now occupied by Microsoft's operating system...
...If Microsoft's bundling tactic succeeds in driving other browser manufacturers from the field, consumers will sooner or later pay in the form of the higher prices or the debasing of a product that inevitably result from the loss of competition...
...If potential entrants and innovators are warned that any product they may develop will be copied (to the extent the laws allow) and then offered "free" and tied to a monopoly product, they will find something better to do with their energy, time, and money...
...Never mind that there are competitive cheeses available that may be more pleasing to the palate, buy our cheese or you can't have our mousetrap, for which at the moment there is no effective substitute...
...First, these are markets in which we rely heavily on innovation to improve products and continue to drive down prices...
...What more devotees of the free market need to understand is that effective antitrust policy is crucial to the maintenance of the system they support...
...But if it turns out that Microsoft does have a monopoly position in the market for operating systems, and that it is tying its browser to that monopoly product, conservatives should be appalled...
...There is no free browser...
...Writing in the Wall Street Journal, he agrees with customers, who he says "want the decision left to the marketplace, with competition driving improvements...
...Competition eliminates excess profits...
...The answer is that it is supposed to confer rewards on those who produce the products that consumers want, at the prices they want to pay, with those preferences expressed in an open and competitive marketplace...
...The company signed that decree rather than fight the Justice Department in court over whether its competitive tactics were unfairly based on market power...
...Tying arrangements run afoul of the law if separate products are involved (right shoes and left shoes are not separate products, copying machines and the paper they use are...
...Having devised a better mousetrap, Microsoft should be free to wring from its invention every last point of market share and every last penny of profits that it possibly can...
...When electric, gas, transport, and telecom companies were thought to be natural monopolies, the demand for their regulation became irresistible...
...Answer: There is no free lunch...
...And they are right to be suspicious of a government lawsuit aimed at one of America's most successful companies...
...The courts will decide the facts in Microsoft's case, barring a settlement...
...If this proves to be true—and again, it is the function of litigation to separate mere assertion from fact—the stifling of competition could help Microsoft perpetuate its market power and convert the rewards it is justly receiving for its foresight and skill into the ill-gotten gains of a firm that substitutes brawn for brains...
...Result: a stifling of innovation...
Vol. 3 • December 1997 • No. 12
