Antitrust Practices and Market Power

Microsoft Antitrust Case Antitrust Practices and Market Power Antitrust case: 2001 antitrust Microsoft settlement Microsoft Windows is such a ubiquitous piece of software, it is virtually impossible to imagine using a computer without it. Even though many people dislike the system, to function in contemporary life requires most students and workers to be familiar with the product. This lack of de facto choice has led Microsoft to become the subject of numerous antitrust lawsuits, the longest and most extensive of which involved its built-in Internet browser, Internet Explorer.

The government alleged that by bundling IE into Microsoft Windows, it subjected other browsers to unfair competitive practices and limited consumer choice. During the lawsuit: Microsoft contended "that it, and it alone, should be the arbiter of what new software is bundled into its Windows operating system, the equivalent of the central nervous system on 90% of personal computers. Besides, Microsoft contends, its Internet browser is not a separate product, as the Government asserts, but an 'integrated feature' of Windows" (Lohr 1998, Ruling on Microsoft).

The government's suit applied the Sherman Antitrust Act "protecting consumer choice and economic competition from the predatory assault of a modern monopolist" (Lohr 1998, U.S. v. Microsoft). At the time, in defense of its contention that Microsoft unfairly 'bundled' services to make it difficult for users to choose other browsers the government stated: "Microsoft's operating system, the central nervous system of a computer, has changed dramatically, adding dozens of new features over the years to make computers easier to use.

All Windows' features, from point-and-click icons to software for sending faxes from a personal computer, were once sold as separate products" (Lohr 1998, U.S. v. Microsoft). The bundling reduced competitive practices while Microsoft said that designing its operating system as it did was its right as a company. In the eventual settlement between the government and Microsoft, Microsoft had to share information with third parties to enable them to more easily create browsers that would be just as compatible with Windows as Internet Explorer.

"The DOJ emphasized the goal of the settlement was to ensure a competitive environment for so-called middleware applications, such as Web browsers and media players, that could help erode the Windows monopoly" (Romano 2007). In terms of the efficacy of the 2001 settlement, the Department of Justice pointed in 2007 to the rise of browsers such as Mozilla's Firefox, Opera, and Apple's Safari which are now in competition with Microsoft and which many users believe to be superior in terms of speed and security (Romano 2007).

Critics, however allege that the settlement still did little to erode Microsoft's monopoly in a meaningful fashion. It should be noted that Microsoft had many defenders, who alleged that having such a large company that could operate on an economy of scale enabled prices to be lower for consumers: in the pre-Microsoft era, PCs were an expensive luxury item but that is no longer the case. However, the problem remains that Windows still has a monopoly as an operating system.

Even though Apple has 'bested' Microsoft in the music and phone categories, it cannot unseat Windows. In fact, Apple transitioned to Intel processors in 2006 primarily to enable Mac users to run Windows. Mac users were 'out of step' with the rest of the computing world (which is still dominated by PCs) until they were able to do this (Good to know, 2012, Apple).

Fundamentally, Microsoft is not a beneficial, controlled monopoly, such as the highly regulated government monopolies over natural gas, in which the economies of scale and the scarcity of resources make such monopolies advantageous for consumers. Pre-Microsoft (and pre-Apple), the computer market was highly diverse and innovative.