I wrote a little about public choice theory and the politics of antitrust in my article last week: http://cgi.pathfinder.com/netly/opinion/0,1042,1678,00.html Attached are excerpts from recent posts to a law and economics mailing list I'm on. I'm unsure of the reposting policy, so I'm deleting authors' names. Should be good reading anyway. -Declan === Assume for the moment that Microsoft is doing something wrong that the government should stop (a reach, I admit). If that is the case, how did the Justice Department come up with the figure of $1 million per day? Is that figure supposed to be compensatory, punitive, deterrent, or what? What goal is a daily fine supposed to accomplish that some more specifically-tailored remedy (injuntive relief, for instance) could not? Are there public choice explanations for what is driving this, and if so, what are they? === The Government's argument, I believe, is that Microsoft violated the consent order. A fine under these circumstances should punish the party that violated the order, deter it from violating the order again, and deter others from violating other orders. As for a public choice explanation, based upon the history of the present Administration, I suspect that one could be found in the records of the Federal Election Commission, i.e., I suspect that executives and shareholders of Microsoft's enemies have made far larger political contributions than Bill Gates and his colleagues. === Intel has in fact come under attack. The FTC has been investigating Intel for several months. The charge is similar to the rap on Microsoft - trying to dominate the inside of the computer by controlling the interface between the processor and "helper chips." The wonder is that Intel hasn't taken over the motherboard market - something that may also be more efficient, just as seemless integration of the operating system and browser and other applications is more efficient. Recall also that the FTC did in fact investigate Intel in the early nineties, though it filed no charges in the end. (I suspect that the FTC's institutional credibility is at stake. Since this is the second Intel probe, they're going to have come back with at least a symbolic consent decree.) Still, I would grant that the attack on Microsoft is more strident. Domestic political economy may play a role. Microsoft has vocal domestic competitors (Oracle, Netscape and Novell, for example). It's no coincidence that Republican Senator Hatch represents Novell's home state. Intel, in contrast, is viewed as the company that's keeping the foreigners at bay. Well yes, conduct and arrogance matter too. And sitting on a big pile of cash helps. That explains why a number of state AG's jumped on the anti-Microsoft bandwagon after the tobacco settlement. Finally, yes, Windows is a terrible operating system and almost everyone has an interest in seeing something better. (A confirmed Mac user, I compare Windows to the aliens in "Men in Black:" arthropod DOS stuffed into the skin of humanoid Mac.) Intel does have an incentive and the means to come up with a better operating system: Windows hurts the demand for its chips. Not surprisingly, Intel's Portland facility has 800 programmers charged with coming up with something as cool as the operating system developed by Next. Stay tuned. === [I interpret "substantial appropriable quasi-rents to be taxed away" as "campaign cash or political contributions to be expropriated as necessary by the government." --Declan] There are two reasons to go after a successful company. One possibility is that it has substantial appropriable quasi-rents to be taxed away. Even if a company's equity is high, it is not readily taxable if the assets can readily be withdrawn (e.g., Becker and Stigler's argument that Jews stayed out of agriculture because they could too easily be expropriated). The other reason for going after a successful company is to assist its competition. This may explain the attack on Microsoft ... and probably the attack on Milken as well, if you are persuaded, as I am, by Daniel Fischel's book on the case. === There has been a lot of talk about how hard Clinton has been on Microsoft. I wonder. Is it possible that Clinton has been soft on Microsoft? Hi-Tech generally has been very pro-Clinton, and contributed a lot of money to him. The fact that Justice is going after Microsoft now is not determinative. It seems to me that Microsoft was surprisingly arrogant in thinking it could get away with this blatant violation of the consent decree. THink of the Priest-Klein selection problem as applied here. PK implies that even if the judge is heavily pro-plaintiff, plaintiffs will win only 50 percent of the time in his court. The reason is that plaintiffs will bring even totally outrageous suits, knowing the judge might still rule in their favor. I suspect the same has happened with Microsoft. Confident that Clinton would block any response from Justice, they violated the consent decree. They still hope Justice will back down. So far, they are wrong (tho--has the fine been imposed yet, or has the judge delayed imposition?). The most humorous part is that Rush Limbaugh, a conservative Apple user, has been cheering for Microsoft, a notably liberal company. ===
Can anybody give an efficiency explanation for this? Prima facie, it is monopolizing conduct. Microsoft's absurd excuses are that (a) Explorer is an integral part of Windows 95, and (b) Allowing Netscape to come up automatically would spoil the integrity of Windows 95.
Microsoft's behavior is indeed puzzling. You would think that even though Windows has such a large market share, Microsoft would wish to enhance Window's appeal even further by making it as easy as possible for those who prefer Netscape to access Netscape easily. But, regardless of the wisdom of Microsoft's tactics, given what Eric reports about the DOJ's complaint against Microsoft, why the mighty brouhaha? Do computer users really need federal forces to help them put Netscape's icon on their Windows screen? === The DOJ wants Microsoft to be found in contempt for violating the '95 consent decree (Section IV (E)(i) of the Final Judgement) which prevents Microsoft from requiring OEM manufacturers to license other Microsoft products as a condition of recieving a license to install Windows '95 on the computers they produce -- is this not what "bundling" means? The icon business arises because three firms asked Microsoft to ammned the license agreement to allow them to remove the IE icon from the desktop and Microsoft refused to grant their requests. This is mentioned in the DOJ request for an order of contempt, but if Internet Explorer really is considered a separate product (and the DOJ claims it is) then Microsoft really isn't allowed to require firms to license it if they license Windows 95. Microsoft insists that requiring the licensing of Internet Explorer, sans icon, is still requiring the licensing of Internet Explorer, something they aren't allowed to do under the consent decree if IE is a separate product, but that it isn't a separate product so everything is just ducky. They also add that if Internet Explorer, sans icon, isn't licensed Windows won't work. They think it's silly to claim that the consent decree requires them to sell Internet Explorer, sans icon, as a part of Windows but prevents them from selling Internet Explorer, with icon, as a part of Windows. As to the why of it all... Microsoft believes, and the government agrees, that the browser itself is the seed of a new sort of operating system which will become a viable alternative to Windows 95. Microsoft says it wants reshape Windows into this new sort of operating system, the DOJ seems to want someone else to come up with it. From the DOJ's request to show cause why Microsoft should not be found in civil contempt: "Microsoft's aggressive and multi-faceted marketing of the Internet Explorer browser reflects its intense competition with other, competing Internet browsers, primarily the "Navigator" browser produced by Netscape Communications Corporation ("Netscape"). Microsoft believes that the success of competing browsers poses a serious, incipient threat to its operating system monopoly. Indeed, as Microsoft fears, browsers have the potential to become both alternative "platforms" on which various software applications and programs can run and alternative "interfaces" that PC users can employ to obtain and work with such applications and programs. Significantly, competing browsers operate not only on Windows, but also on a variety of other operating systems. Microsoft fears that over time growing use and acceptance of competing browsers as alternative platforms and interfaces will reduce the significance of the particular underlying operating system on which they are running, thereby "commoditizing" the operating system." And it's really hard for me to read this in any way other than "Microsoft is starting to realize that a web based operating system would be a better product than Windows 95 and is trying to create such an operating system, but we don't want them to because they're a monopoly." ===
And about Congressional consistency: Let's suppose that Congress in July of 1890 did indeed intend the Sherman Act to help consumers. Surely any institution so fickle as to go from being consumers' friend to being consumers' foe in a mere three months (by October 1890 when it hiked tariff rates) is not an institution to be trusted with the awesome power to decide which business practices do and do not constitute anticompetitive behavior.
I would add: Why would anyone expect a Congress (1) in which a single majority party leader appointed the chairmen of each legislative committee (2) that used its committees to appoint the vast majority of federal workers (3) operating in an environment in which the pressure group had not yet emerged, to serve consumers? There is not only an antitrust myth, there is a myth among economists that the legislators of the period had any reason to make decisions based on the logic of economics. We might call this the legislature myth. The antritrust myth and the legislature myth seem to be stories we tell our little children in order to avoid scaring them. Unfortunately, many professional economists treat their students like little kids. ===
So, you and I also agree that Congress often does stupid things. But what is the alternative - do you know of a better system?
Yep. A common-law system with no antitrust statutes. ===