Econ 14 Files
Econ 14 Lecture
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Lecture 24: Antitrust Policy
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Economics 14 |
Lecture 24: Antitrust Policy
inefficiency of monopoly
antitrust policy
United States v. Microsoft
Inefficiency of Monopoly
| A monopoly produces too little output and charges too high a price compared to a competitive market. |  |
Antitrust Policy
Anti-trust policy is designed to control the growth of monopoly and to prevent undesirable business practices.
The Sherman Anti-trust Act (1890) made it illegal for a firm to
- use monopoly power in one market to enhance its position in another
- attempt to control a market in all stages of production
United States vs. Microsoft
The Department of Justices alleges that Microsoft monopolized the market for PC operating systems and leveraged this monopoly power in markets for complementary goods such as browsers.
In particular, the allegations fall into three categories
- monopolization of the market for operating systems for PC's
- DOJ needs to show that MS used its monopoly power
- typically, this means charging a high price
- anti-competitive bundling of Internet Explorer with the Windows
operating system
- DOJ needs to prove that this has harmed consumers
- anti-competitive contractual arrangements with various vendors of related goods
The judge in the case made the following findings of fact:
- MS has a monopoly in PC operating systems
- MS has used its monopoly power and harmed competitors
- MS has hobbled the innovation process
- MS actions harmed consumers
- various MS contracts had anti-competitive implications
The judge ordered that Microsoft be broken up into two separate businesses: one with the operating system and one with everything else. Microsoft reached a settlement with the federal government agreeing to an independent panel to monitor the company's practices.
The agreed upon settlement does not prevent Microsoft from tying software like its Web browser, e-mail client and media player with its operating system -- initially an issue that was a cornerstone of the government's case against Microsoft but does require the company to provide software developers with the APIs used by Microsoft's middleware to interoperate with its operating systems, allowing developers to create competing products that can utilize the integrated functions Microsoft includes in its own middleware. It also gives computer manufacturers and consumers the freedom to substitute competing middleware software on Microsoft's operating systems.
The agreement also prohibits Microsoft from retaliating against any PC manufacturers or software makers for supporting or developing competing software. Additionally, it requires the company to license its operating systems to PC manufacturers on uniform terms for five years. It also bans Microsoft from entering into exclusive agreements.
Microsoft also agreed to ensure that non-Microsoft server software can interoperate with Windows on a PC the same way that Microsoft servers do.
Finally, as noted above, the settlement includes a provision for a panel of three independent monitors, which will work from Microsoft campuses and have full access to the company's books, records, systems (including source code), and personnel for five years. The court will have the option to extend that period for another two years if it finds that Microsoft violates the settlement.
The European Commission also has ruled that Microsoft violated anti-trust laws on two counts. One, by tying in its Media Player music and video playing software into Windows, Microsoft has put rival players at an unfair competitive disadvantage. And two, by withholding crucial information about how Windows works, the company has also disadvantaged competitors in the market for server software that runs networks of PCs. Microsoft's own server software works better with Windows on PCs than rivals' server systems.
In addition to paying a large fine, the EC wants Microsoft to reveal some of the computer code inside Windows in order to create a level-playing field in the server software market. To restore a level-playing field in the media player market, the Commission wants Microsoft to sell two versions of Windows: one with Media Player stripped out and sold separately, and the other with the software included.
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David A. Latzko Business and Economics Division Pennsylvania State University, York Campus office: 13 Main Classroom Building phone: (717) 771-4115 fax: (717) 771-4062 e-mail: web: www.yk.psu.edu/~dxl31 |
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