I need to do a second DRM post to follow up my last post—and if you haven’t read Ed Felten’s posts (here and here), you should—but before doing that, let me raise a different question. I just completed 3+ class sessions on Microsoft in my antitrust class. Here is the question: to what extent do we think that the current competitive structure in computers and the Internet is because of—or in spite of—the U.S. and EU cases against Microsoft?
The simple version of the Microsoft story runs something like this. Microsoft acquired a dominant position in operating systems through a mix of hard work and good fortune (and strategic missteps by competitors like IBM). Markets such as those for operating systems may be characterized by Schumpeterian competition, meaning that we have periods of monopoly separated by relatively brief periods of competition for the market. Think of this as a model of punctuated equilibria if you prefer biological metaphors
The emergence of the Internet and the Netscape browser started the first post-Windows period of competition. The DC Circuit’s unanimous decision in the Microsoft case makes clear that Microsoft behaved anti-competitively in maintaining its Windows monopoly and in using that monopoly to distort the between-period of competition.
Judge Jackson for the District Court originally proposed to cleave Microsoft in two, into an operating systems company and applications company, but that remedy did not survive review in the DC Circuit. Instead, the remedy put in place was much more limited. That remedy attempted to limit the ability of Microsoft to exert pressure on computer manufacturers as well as other key channels for software distribution. And by imposing greater uniform pricing on licenses for Windows the decree reduced the ability of Microsoft to control distribution channels.
This remedy appears to be having results. The point of the remedy was to enable software makers to seek distribution through key channels such as computer manufacturers and Internet service providers. On February 7th, in a front-page story, the Wall Street Journal reported that we are now starting to see competition over the desktop, in particular in the form of planned billion-dollar deal between Dell and Google for the distribution of Google software.
But now the question: is the emergence of search in general and Google in particular somehow related to the antitrust action against Microsoft? Are there steps that Microsoft would have taken against Google akin to those that it took against Netscape, steps that Microsoft has not taken because of either the remedy or the threat of further antitrust sanctions? Or is it possible that we're just seeing the next wave of Schumpeterian competition and Google would have emerged as a competitive threat to Microsoft even had there been no antitrust case against Microsoft?
And take one step forward, what of Vista, the forthcoming version of the Windows operating system? We are starting to see reports of competitor complaints about how that operating system will be structured. In my antitrust exam two years ago, I asked my students to address what would happen if Microsoft used its control over Internet Explorer to alter competition in search. For example, what would happen if Internet Explorer had built in a search toolbar directing searches to MSN? Would competition still be preserved if users could install a second toolbar to search Google?
Or would the presence of two toolbars sufficiently confuse consumers that permanent installation of the MSN toolbar would partially foreclose installation of the Google toolbar? After all, this was one of the stories in the DC Circuit case, where the embedding of the icon for Internet Explorer on the desktop made it more expensive for computer manufacturers to add an icon for Navigator.
[Disclosure: The Law School has received grants from Microsoft in the past, and, I believe, continues to do so.]