In my antitrust experience, there are few things more helpful in dealing with a monopoly case than to have the monopolist's side clearly articulated. The issues are then sharply drawn and one knows exactly what one's own burden of proof is. The Competitive Enterprise Institute (CEI) is a right-wing organization, heavily funded by money from the likes of the Olin and Schaife foundations, and is devoted to the repeal of U.S. antitrust laws. Founded by James Miller, Ronald Reagan's OMB director and then his FTC chairman, it is in the business of paying-- handsomely paying (up to $500 per hour)--so-called "scholars" to trash antitrust. Ralph has said that his Microsoft conference of today and tomorrow is but "a first step into a deeper and sustained inquiry" here. And of course he is quite right. The right-wing case for Microsoft has been, it seems to me, articulated especially well by the Reagan/Miller/CEI operative who authored the following "5 Myths About Microsoft." The best service this group could now render to the public interest, in my view, would be to see if it can--by solid facts--overwhelmingly rebut these pro-Microsoft claims of the political right. Charles Mueller, Editor ANTITRUST LAW & ECONOMICS REVIEW http://webpages.metrolink.net/~cmueller ************* The Competitive Enterprise Institute's Five Myths About Microsoft* (Note: The following "myths" apply to many of today's supposed examples of "lock-in" of allegedly inefficient technologies. Microsoft happens to be the most prominently cited example of the phenomenon.) Leveraging Windows to Dominate the Browser Market Represents Unfair Competition: A popular myth today is that a savvy company can routinely leverage a "monopoly" in one product to force on consumers a product that they do not want. Companies lack this ability. Microsoft was unable to sell consumers on its Microsoft Network rival to America Online -- even though MSN had been "bundled" with the Windows 95 operating system. Similarly, Microsoft Money still lags behind Quicken. And as Netscape learned the hard way by bundling its Navigator browser with its Communicator suite, and as Apple leaned by bundling its entire computer with its operating system, bundling products doesn't work unless consumers want the bundling. In any case, Netscape, not Microsoft, dominates today's browser market, and retains every opportunity to maintain dominance by satisfying customers. In a sense, browser competition could hardly be more perfect: Because downloading Netscape's Navigator or Microsoft's Internet Explorer is equally simple, either firm will have to win on the basis of superior features. Microsoft Illegitimately Dominates Operating System Software: Microsoft's rivals tend to imply that Microsoft's operating system is utterly impervious, seemingly as if it dropped out of the sky unbidden. Rather, rivalry among operating systems for desktop dominance has been and still is intense. Microsoft's operating system dominance was not pre-ordained. Nothing prevented Sun, whose UNIX operating system was developed ten years before MS-DOS, from transferring that technology to the early PC marketplace. Nor did anyone force Sun to wait until 1991 to finally introduce a version for the Intel x86 platform. No one forced Apple back in 1984 to take the course it chose in not licensing its operating system to others as Microsoft did. There is nothing unseemly about one competitor winning out over the others and setting a standard. That was the purpose of the nearly 20 years of protracted battle, during which consumers made their choice. Microsoft is Illegitimately Monopolizing the Internet: Some claim Microsoft's proprietary knowledge and policies on sharing information about its operating system are oppressive and geared toward helping Microsoft dominate the Internet with its own software. But on the other hand, it would appear that, while application developers do depend upon Windows 95, Microsoft in turn has a stake in nurturing developers' success rather than in undermining them. But for the sake of argument, take the critics at their word: If such dissatisfaction with Microsoft is indeed universal, then the market is ripe for moving to a new platform - just as we moved rapidly from vinyl records to compact disks. There's no need for government to step in if a problem really exists: If Microsoft ($9 billion in 1996 revenues) were untrustworthy, nothing prevents the formation of consortia between developers and (for example) Compaq ($18 billion), Sun ($7 billion), and Apple ($8 billion) and others to offer consumers their allegedly superior hardware and software alternatives. Indeed, competitors by their own account already have another option. Given their glowing claims about the superiority of Sun's Java programming language -- which allows programs to execute in Netscape's browser on any operating system -- competitors should simply issue applications programs in Java format and be done with it. Otherwise, consumers retain the right to deal unobstructed with Microsoft to secure the services that competitors cannot yet provide. (Moreover, nothing precludes the future creation of rival "Javas" that work better.) Longer term, particle physicist Michio Kaku in his book Visions anticipates a future of 1-cent microprocessors as plentiful as scrap paper, a world where desktop computers will be only one among myriad devices connected to the Internet. Additionally, as engineers approach the physical limits of silicon chips, revolutions in quantum computing and DNA computing will change the competitive landscape. Microsoft has no obvious advantage in such a world, though it should be free to offer services there. The Consent Decree with the Justice Department Should Preclude Bundling a Web Browser With Windows: A technical legal debate exists over whether the bundling of Microsoft's browser is an allowed enhancement to the Windows operating system, or whether it is a disallowed "separate product." One problem with the claim that Internet Explorer is not allowed under the consent decree is that the browser was offered with Windows 95 at the outset. But most relevant, such arbitrary distinctions interest only those with a stake in using government force to overrule customers' free choices. In a free market, products must evolve and be "bundled" as consumer demand and convenience requires. Making artificial distinctions between the retrieval of data on the hard drive vs. on the Internet is counterproductive, unfair and anti-consumer. Prohibiting Microsoft's branching out into the Internet artificially cripples the company, just as did a former consent decree with Sears prevent it from anchoring stores in shopping malls. Microsoft Borrows and Doesn't Innovate: Subjective criticisms about whether a company is an innovator are hardly grounds for police action and completely irrelevant to an antitrust proceeding. What matters as far as free markets are concerned is the ability to meet needs and market one's offering. The history of innovative business is one in which enterprising businessmen and engineers take the scientists' inventions out of the laboratory and make them practical for consumers. Thus innovation need not equate with invention. For example, Microsoft indeed didn't invent MS-DOS -- its key operating system during its early history -- but it purchased and owns it. Apple's graphical user interface, typically regarded as having been copied by Microsoft, was actually "borrowed" from Xerox PARC by both companies. Neither "innovated," strictly speaking. Nonetheless, it is disingenuous to argue that any company's ability to anticipate consumer needs in positioning and improving its operating system, word processing and spreadsheet software reflects a lack of innovation. A better definition of innovation is one that includes a company's ability to deliver new services cheaply and efficiently to consumers. # # #