Antitrust Regulators to the Rescue

Why do I not feel reassured when government antitrust regulators tell us they are protecting consumer choice in the marketplace?

Maybe it's because I have confidence in free-market institutions to protect consumer choice and the regulators don't.

Joel Klein, the assistant attorney general for antitrust, told an audience last year, "The natural state of markets is not to move towards increasing competition." The Justice Department specifically said in 1995 that it intended to use the antitrust laws to make sure that competition spurs innovation.

High tech companies seem to have drawn particular attention from the Justice Department – which seems to be convinced something illegal must be going on, although it isn't sure exactly what. This is ironic, considering that the high tech market changes faster than the lawsuits can be filed.

Still, that hasn't deterred Justice. Long before 1995, the department had spent 13 years – from 1969 to 1982 – and millions of tax dollars trying to find enough evidence to pin an antitrust charge on IBM, finally dropping the case after its own internal review concluded it was "without merit and should be dismissed."

IBM seemed to prove that point with its massive decline that began later in the 1980s when it was faced with the competition from small entrepreneurs making home computers. Apparently the Justice Department's conclusion was right – but did it take 13 years to figure that out?

Now Justice is after Microsoft. The issue now in court is about Internet browsers: whether Microsoft violated the terms of a settlement it made with the Justice Department in 1994 by requiring computer manufacturers to use its Internet Explorer web browser with its Windows software, giving Explorer an advantage over the rival Netscape Navigator browser. The Justice Department contends that this is illegal "tying-in" of products. Microsoft counters that Explorer is an "integrated product," one of many improvements provided to consumers with upgrades of Windows.

To put all this into perspective, it helps to remember that the Justice Department does not operate in a political vacuum. Justice filed the 1993 action against Microsoft – the one settled in 1994 – only after the Federal Trade Commission had already failed twice on tie votes to issue an antitrust complaint, and only after calls from a couple of senators to Anne Bingaman, then the assistant attorney general for antitrust.

As economists Richard McKenzie and William Shugart II have written, "Only recently have economists begun to recognize that antitrust policy operates in much the same way as do other forms of government regulation, which are widely understood to be vulnerable to 'capture' by well-organized special interest groups."

Justice says it has gone after Microsoft because Microsoft's Windows runs more than 90% of the world's PCs. But, as Alan Reynolds of the Hudson Institute points out, that's if you only consider operating systems for single-user computers with Intel microprocessors. For example, Apple computers aren't included, nor Sun Microsystems workstations, nor shared networks of computers. Of the total software market, Microsoft has a market share of 4%.

Netscape president James Barksdale, the government's star witness against Microsoft, testified that Netscape was "basically out of" the browser market in personal computers and Internet Service Providers. Still, America Online just paid $10 billion for Netscape. And due diligence connected with the purchase turned up the finding that the Netscape browser was bundled with 22 percent of personal computer shipments and that it had 24 percent of the market of top Internet Service Providers.

The government claims that Microsoft's dominance of the PC market will force computer makers to produce Windows-based machines and prevent the development of new applications for anything but Windows. However, Reynolds says, "thousands of no-name computer resellers account for 44% of the market, and will gladly install any operating system or none."

Whatever the finding by U.S. District Judge Thomas Penfield Jackson, the case likely will end up eventually at the Supreme Court. And Assistant Attorney General Klein made a point of saying that Justice is continuing to investigate "other Microsoft practices and products."

No one challenges the fact that Microsoft is a tough, take-no-prisoners competitor. That's because Bill Gates recognizes that, whatever Microsoft's share of the market, it is by no means secure. Microsoft was incorporated just one year before the government ended its 13-year pursuit of IBM. Some other unknown person or startup may be in the same place now, ready to be the next Microsoft.



The National Center for Policy Analysis is a public policy research institute founded in 1983 and internationally known for its studies on public policy issues. The NCPA is headquartered in Dallas, Texas, with an office in Washington, D.C.