Two weeks ago, Michael Kinsley compared Robert Bork's arguments as a paid Netscape consultant in the Microsoft case with the book he wrote on antitrust 20 years ago. Bork responds to Kinsley's article here, and Kinsley returns the volley.
Michael Kinsley seeks to find a contradiction between the book I wrote in 1978, The Antitrust Paradox, and my representation of Netscape and other firms that support the government's antitrust case against Microsoft. He goes on to suggest that I have become a "disingenuous cynic" and have endangered, if not lost, my scholarly reputation. Though he reveals his own conflict of interest, which hardly requires confession, since everyone knows that Microsoft owns Slate, his attack follows the Microsoft line. That company's minions are masters of the ad hominem.
Let us begin with my motivation, which Mr. Kinsley questions. When Netscape first approached me, I said I thought I was on the other side. All I knew then came from newspaper accounts that described the case as an attack on tie-ins. I continue to think tie-in law mistaken, but this was not a case of extending a monopoly to a competitive market. Rather, Microsoft, as its own internal documents show, was trying to stamp out a product, the Netscape browser, that might compete with its monopoly operating system. Netscape sent not only the reference to my book, The Antitrust Paradox, but an explanation of why predation would work in this market. At about that time, a lawyer for Microsoft called and, in conversation and by letter, tried to convince me that the company's practices created efficiency. He offered me a retainer. I have no idea how large that might have been because I did not ask or try to negotiate with him. I said that if he convinced me, I would simply stay out of the case. He did not persuade me, and I went with Netscape, charging the same hourly rate I charge all clients, no more, no less. There was no reason why I should make that choice except that I thought, and continue to think, Netscape is right. The government seems to be proving that in the courtroom.
Mr. Kinsley's economic analysis fares no better than his personal attack. The key question is whether predation, including price predation, can be an effective monopolizing technique. As I recall Mr. Kinsley's review of my book, it was one of the less comprehending assessments. The ensuing 20 years have not improved his comprehension, and it is too much to expect that he will reread the work now. My belief that Netscape has the better of the argument with Microsoft rests on much more than the Lorain Journal case. To refresh Mr. Kinsley's memory, the relevant passage begins at Page 148, where I wrote that "The technique of predation, rather than the question of reserves, is likely to be decisive in the success of the tactic, and the law should focus upon this issue."
Price cutting will usually not be a successful technique, I wrote, because it requires the predator to expand his rate of output in order to drive prices down. In the case I posited, an expansion of output imposes increasing costs upon the predator because his marginal costs will rise and the victim's will not. That will be true in almost all industries. It follows from the argument that price cutting can be a successful predatory tactic if marginal costs are not rising. I did not make the point explicit because it seemed obvious and a rare case.
Microsoft's representatives have made it clear that, after development costs, the production and distribution of software displays a flat marginal cost. The predator is at no disadvantage. If his financial reserves are larger than the victim's (in proportion to their market shares), the predator can destroy the victim's business. This is especially true where the predator is spending only a small fraction of its monopoly profits while the victim has no such profits. Nor will outsiders put up the capital to resist the predator, for they will know the victim is at a disadvantage in the fight.
That, in essence, is the case against Microsoft's attempted destruction of the Netscape browser in order to defend its monopoly in operating systems. I trust the matter is now clear to Microsoft, Slate, and Mr. Kinsley, but it is too much to hope that any of them will concede.
Michael Kinsley responds:
First of all, thanks to Judge Bork for the above response. Next, a few points in reply:
1. I consulted no one at Microsoft, outside of Slate, in writing my piece. The company's "minions" didn't even know I was writing it until it appeared. I did read a document or two off the company's publicly available antitrust suit propaganda page, as well as a similar page sponsored by the Justice Department.
2. One of the striking things about the Microsoft trial, so far, is the extent to which the Justice Department and its lawyer, David Boies, have built their case around personal vilification of Bill Gates. This may be justified or not--we like him well enough around here!--but it does seem unreasonable for a supporter of the DOJ to suggest that ad hominen attacks are a Microsoft specialty.
3.In his response, Mr. Bork fleshes out his earlier statements about how he came to sign up with Netscape. Until Netscape approached him, he thought Microsoft was right and Netscape was wrong--based on his general view that "predation" (misuse of market power) is largely a myth. Netscape didn't merely point out a two page discussion in his book of a single case that pointed the other way. Netscape also sent him "an explanation of why predation would work in this particular market." If Netscape supplied Mr. Bork with the argument why his own theories supported Netscape's position, what did Mr. Bork supply?
4. Mr. Bork says that when Microsoft also tried to hire him, he gave the company's lawyer a hearing, with the understanding that "if he convinced me, I would simply stay out of the case." Bizarrely, Mr. Bork seems to think this arrangement allowed him to choose sides with complete neutrality. Let's see: If he chose Netscape, he got "the same hourly rate I charge all clients, no more, no less." If he chose Microsoft, he got ... nothing. Sure, that sounds perfectly neutral.
5. I'm sorry Mr. Bork recalls my review of his book as "one of the less comprehending assessments." It was, as I said, a favorable review. Maybe that's why.
6.Mr. Bork says his argument against Microsoft is based on "much more" than his book's two page discussion of the Lorain Journal case. I guess it depends on what you mean by the word "much." All he cites in this reply is one additional passage from the book, which, he concedes, "does not make the point explicit." Indeed it does not. The discussion of predation in the pages following Page 148 does not contain a single word suggesting that Bork believes predatory pricing can ever be a valid antitrust concern. In fact, the only "technique of predation" that Bork, in his book, expresses any concern about is "misuse of government process." He writes, "Misuse of courts and government agencies is a particularly effective means of delaying or stifling competition."
7. "The point" is his current argument that his earlier argument--that predation by price cutting doesn't work--only applies where marginal costs are rising. He says his current argument is implied, though not "explicit," in the book (and therefore, by further implication, he's not a hypocrite). It's true the book assumes rising marginal costs, but it does not "follow," as he claims, that predation by cost cutting depends on rising marginal costs. (If you assume you're holding an apple and conclude from that you're holding a fruit, it doesn't "follow" that if you're holding an orange you're not holding a fruit.) Mr. Bork's current argument may be right or wrong, but it's certainly not derived from his book.
8. The assumption of rising marginal costs (in any but the shortest of short terms) is widely regarded as the weak link in the logic of neoclassical economics. Software may be an extreme example of marginal costs that plunge immediately to near zero and stay there, but learning curves and economies of scale are more characteristic of most modern industries than rising marginal costs. Yet in order to defend his current position, Mr. Bork now declares--unnecessarily!--that his whole theory of antitrust rests on this weak point. His life's great intellectual achievement, he says in effect, doesn't apply in most real-life situations.
9.On the merits of his current argument, Mr. Bork is right to call me uncomprehending. His original argument that predatory price cutting can't work (and therefore needn't be illegal) was that it will always cost the predator more than the intended victim, because the predator is selling more units during the price war in which both parties are losing money. I do not comprehend why that depends on rising marginal costs. It's true that rising marginal costs increase the predator's losses--but even with flat marginal costs, the predator's losses get bigger and bigger until the victim surrenders. Zero marginal costs, if anything, ought to make it even harder to drive a competitor from the field with devastating losses. Am I missing something?
10. And--to finish the argument--if Mr. Bork's original argument about relative losses doesn't depend on rising marginal costs, neither does its corollary that capital markets should be willing to bankroll a price war that the victim could win with an adequate war chest. (This is actually the very point, in context, of the sentence Mr. Bork quotes from Page 148 of his book.) I therefore do not comprehend why Mr. Bork now thinks it matters that Microsoft has more money than Netscape when he was so specifically contemptuous of that argument 20 years ago.
11. This is not to say that Mr. Bork's old theory was right or that his new one is necessarily wrong--only that the two theories are irreconcilable. And if what Mr. Bork is arguing today cannot be honestly derived from his seminal book 20 years ago, this makes the question of what Netscape is paying him for even more piquant.