The Case Against the Case Against Microsoft

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Nov. 13 1997 3:30 AM

The Case Against the Case Against Microsoft

Why the Justice Department is barking up the wrong operating system.

(Continued from Page 1)

So after seven years and millions of dollars spent investigating Microsoft, the government seems to have found virtually no anti-competitive acts to account for the company's success. Is this because all Microsoft's competitors, licensees, and suppliers are too scared to tell the government what they know? Unlikely. Has the government not tried hard enough? Hardly. All the incentives for antitrust enforcers--media adulation, professional recognition, and congressional budgetary rewards--push the government toward "bagging the biggest game." We taxpayers are employing an army of lawyers and economists who spend their every waking moment--and probably a few in dreamland--thinking of ways to get Microsoft. They are the best in the business, and their efforts have turned up precious little.

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The ongoing government scrutiny itself may help to explain the absence of verifiable episodes of anti-competitive behavior by Microsoft. A swarm of government enforcers peering over a company's shoulder is a strong incentive for it to behave. More fundamentally, though, Microsoft's success is not a mystery requiring any criminal explanation. The real and obvious source is the good fortune of being the pre-eminent operating system on IBM PCs. This is not an antitrust violation.

Microsoft's position is a reflection of an economic phenomenon often referred to as "network externalities" (a k a "positive economic feedback" or "increasing returns to scale"). In the market for personal computers, the value of a machine is directly proportional to the number of applications that run on it. Both suppliers and consumers will gravitate toward, regardless of whether it is technically the best. Once such a standard becomes predominant, it will be very difficult to displace--at least until the next "paradigm shift" comes along.

Being the operating system on IBM PCs, which set the standard for personal computing, meant that Microsoft became the standard personal computer operating system. The fact that Microsoft won that round is no guarantee it will emerge the winner of the next paradigm shift. In the browser wars, Microsoft faces a formidable array of opponents--Sun and Oracle, to name just two--and, after two years, it still lags behind Netscape even though IE generally gets better reviews than Navigator.

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Microsoft's competitors, however, want the government to put some sand in Microsoft's saddlebags. However frightening Bill Gates may seem or however unfair and imperfect the market phenomenon of network externalities may appear, do we really want antitrust lawyers and economists determining Internet standards? It's difficult to believe the answer is "yes."

Rick Rule is a Washington lawyer and former assistant attorney general in charge of antitrust.

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