Economic concepts and general principles

Antitrust Case

Economic general

Antitrust practices and market power: Microsoft

One of the most famous and prolonged cases involving antitrust allegations was that of the suit brought about by the Department of Justice against the Microsoft Corporation. It was alleged that Microsoft's act of 'bundling' specific applications such as its web browser, Internet Explorer and Windows Media Player to make them the default setting of its Windows operating system resulted in anticompetitive practices within the software industry. The European Union also waged an antitrust case against Microsoft, and its findings against the company were even more broad and sweeping than in the United States. As a result, in the EU, Microsoft "was not allowed to offer any technological, commercial, or contractual term or inducement to make the bundled version the more attractive, and a monitoring trustee was required to ensure that the unbundled version of Windows works as well as the bundled version" (Economides & Lianos 2009).

'Bundling' as practiced by Microsoft can be construed as anticompetitive behavior under the Sherman Antitrust Act when a market leader uses its dominant position to demand the captive consumers buy a 'bundle' of services as a united component, regardless of the consumer's preference. This can effectively shut competitors out of the market -- in the cases against Microsoft, it was alleged that by bundling Internet Explorer into the system, potentially better web browsers were disadvantaged. Many consumers at the time of the suit were not savvy enough to realize that there were other browsers (although this has since changed dramatically) and the old Windows system was designed not to function as well using other browsers, further limiting competitive practices within the industry and impeding consumer choice.

If a company without the market dominance of Microsoft had behaved in such a manner, the behavior might not have seemed as egregious, but the lack of choice of viable computer operating systems left most businesses and consumers at Microsoft's mercy, which meant that Microsoft had a great deal of leverage in terms of bundling the components the average user required to operate his or her computer system. Over the course of the long litigation that ensued regarding the Microsoft case, "the D.C. Circuit moved to a rule of reason test for software bundles that requires plaintiffs to demonstrate that the benefits of the tying practice are outweighed by the harms in the tied product market" (Economides & Lianos 2009).