Microsoft Antitrust Case: Monopoly, IE, and the Sherman Act

Introduction to Monopoly Conditions

Monopoly conditions can be defined by an array of circumstances that a company can find itself in when it lacks any reasonable competition. These conditions can manifest in a variety of ways, and in some cases it is only reasonable to have one company provide goods or services — such as utilities or internet access — because these services require massive infrastructure investments that create barriers to entry for other firms in the market. Many of these institutions are regulated by the government to ensure that prices are not raised to an extent that they create a large deadweight loss to society — that is, a price higher than the market equilibrium at which marginal revenues equal marginal costs. In the event that a monopoly situation arises, the government can intervene in its operations to attempt to remedy the negative consequences.

Microsoft's Market Position and Antitrust History

One of the best examples of potential antitrust violations and investigations in recent decades can be illustrated by Microsoft's market position. Microsoft spent 21 years — more than half its lifetime — fighting antitrust battles with the U.S. government, waging one of the biggest monopoly disputes in the country's history (Chan, 2011). The company was nearly split up in the early 2000s because its operating system provided an unfair advantage in the web browser industry. Since Microsoft Windows is the world's most popular operating system for personal computers, software bundled with the system would be automatically available to users. This meant that Microsoft's browser, Internet Explorer, held an unfair advantage over competitors such as Netscape — a position that was argued to constitute an unlawful advantage in the market.

Department of Justice Charges and the Sherman Act

The United States Department of Justice concluded that Microsoft was abusing its market power — on grounds other than price — through its inclusion of the Internet Explorer (IE) web browser in its operating system. In 1994, Microsoft Corporation was sued by the Department of Justice on behalf of the United States for violating §2 of the Sherman Antitrust Act "…by engaging in monopolization through a series of exclusionary and anticompetitive acts designed to maintain its monopoly power" (The Washington Post, 2000). Furthermore, the company was charged with, among other things: (1) attempting to monopolize the web browser market; (2) tying its Internet Explorer browser application to its Windows operating system; and (3) "unlawfully maintaining a monopoly in the operating system market through anticompetitive terms in its licensing and software developer agreements."

Conclusion: Competition and the Changing Landscape

Although Microsoft did not gain any direct economic profits from the sale of its web browser, it leveraged its market power to eliminate competition in a way that served its broader commercial interests. This makes the case a notable and instructive example in antitrust law. Ultimately, technological change — faster internet access and the rise of mobile platforms — accomplished much of what regulatory intervention had sought to achieve, restoring a competitive environment in both the browser and operating system markets.

References

Chan, S. (2011, May 11). Long antitrust saga ends for Microsoft. The Seattle Times. Retrieved from http://www.seattletimes.com/business/microsoft/long-antitrust-saga-ends-for-microsoft/

The Washington Post. (2000, April 3). Conclusions of law and order. Retrieved from http://www.washingtonpost.com/wp-srv/business/longterm/microsoft/documents/col1.htm