Regulators may be threat, not Microsoft There's no justification for governments's entry into Web browser wars

March 08, 1998|By ROBERT A. LEVY

Good and bad news from Microsoft hearings last week before the Senate Judiciary Committee: Microsoft Corp., its allies and its rivals agree that there's no need for further antitrust legislation tailored specifically for high-tech industries. That's the good news. But it leaves the Department of Justice's Antitrust Division with a large role to play whenever it perceives that a company has acquired "too much" market power and is behaving in an "anti-competitive" manner. That's the bad news.

Microsoft Chairman Bill Gates argued forcefully to the senators that Microsoft has existing potential and competition, that the company has earned its market leadership by satisfying the needs of its customers and that we should not politicize competition by enlisting the public sector in support of private, parochial interests.

His rivals at Netscape Communications and Sun Microsystems came back with allegations of illegal tying arrangements,

predatory pricing, exclusionary tactics, consumer coercion -- the usual litany of grievances uttered when customers prefer someone else's products. Sen. Orrin G. Hatch of Utah and his committee, with a couple of exceptions, chimed in to castigate ++ Microsoft for pricing its products too low and for obscene profit margins -- a neat trick indeed.

The truth, which no one at the hearing seemed to understand, is that the antitrust laws were counterproductive when first enacted, and are even more so today.

Absent government-sponsored barriers to entry, free markets ensure that market power cannot be sustained for long. Nowhere is that more evident than in the software industry, where competition and innovation remain extraordinarily vigorous. Still, Antitrust Division chief Joel Klein has warned that the Department of Justice intends "an active and continuing investigation into several Microsoft business practices." Government lawyers are "poring over hundreds of contracts Microsoft struck in the past two years with major providers of information or entertainment on the Internet."

Why the frenzy of antitrust activity after three years of relative peace?

Reporters for the Wall Street Journal speculate that Microsoft's efforts to defer compliance and its aggressive -- some say arrogant -- posturing are widely seen as a colossal public relations blunder, angering the antitrust regulators. If that's the explanation for the Department of Justice's fulminations, the department is doubtless more of a menace than Microsoft. When public policy is rooted in the petulance of government officials, .. we are all at risk. Microsoft has an obligation to its shareholders and an absolute right under the law to defend itself energetically, no matter how testy the reaction of the Department of Justice attorneys. In a world of corporate capitulation to government threats, it's refreshing that this company, so far, has exhibited some backbone.

A principal objective of our antitrust laws is to foreclose arrangements that "restrain' trade and harm consumers. But trade isn't restrained just because a consumer agrees to pay a price for Microsoft Windows that exceeds some lower price that he or she would have preferred. Nor is aggregate trade diminished when Netscape does less business and Microsoft does more. And there's no harm when a computer maker packages Microsoft's World Wide Web browser, Internet Explorer, with Windows in response to consumer demand. In fact, few manufacturers could risk offering a PC without Internet Explorer. If they did, rival manufacturers might be tempted to entice customers by bundling Explorer free of charge. That's probably why Micron Technologies announced that it would not remove the browser even if a customer wanted it removed and major manufacturers -- including Compaq, Hewlett-Packard, Dell and Packard Bell NEC -- have already indicated that they will continue installing Internet Explorer.

Nonetheless, Attorney General Janet Reno declared that "forcing manufacturers to take one Microsoft product as a condition of buying a monopoly product like Windows 95 is not only a violation of the court order, it's plain wrong." The attorney general does not tell us how or why the company's behavior is plain wrong or precisely who has suffered as a result. Surely, consumers are not worse off. They are getting browser software -- often Netscape Navigator as well as Internet Explorer -- at no extra cost. Maybe Reno was concerned about the impact on Microsoft's competitors when she bemoaned the company's "plain wrong" conduct. If so, she conflates preserving competition, the asserted rationale for our antitrust laws, with protecting competitors, which all too frequently entails companies attempting to procure through the political process what they have been unable to achieve in the marketplace.

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