It is worth recounting that this is the judge who in 1997 issued an injunction prohibiting Microsoft from including a browser with the operating system even though the plaintiffs had not asked for such an injunction. This is the judge at whom Microsoft thumbed its nose by interpreting his order literally, removing the browser files, and thereby offering consumers an operating system that wouldn't work. And this is the judge who was then overruled by an appeals court panel for his overzealous issuing of the injunction. Consistency can be a virtue, but consistent muddled thinking is not. Start with his definition of the relevant market. Does the Macintosh belong in the same market as Windows PCs? Common sense tells us that they are substitutes. Note that mainstream publications such as Consumer Reports compare Macs to PCs, just as they compare Fords to Chevys. But the judge, apparently unwilling to make even this minor concession, concludes that the Macintosh does not compete with Windows PCs. In his apparent zeal, his findings now threaten a large component of the computer industry. If the Macintosh is not a substitute for the PC, then the PC must not be a substitute for the Macintosh. Apple, therefore, must also be a monopoly, since it has a 100 percent market share in its relevant market. And Sun must be one as well. This finding of fact may indeed wind up giving some of Microsoft's rivals, at whose behest the case was brought, their just desserts. The judge states that even if Microsoft could prove that its prices were at a competitive level, it would have no relevance to his finding of monopoly pricing. This puts Microsoft in the impossible position of being guilty regardless of its prices. Most importantly, the acid test of monopoly is that it hurts consumers, not competitors such as Netscape, Sun or IBM. The judge devotes a mere 5 of 412 paragraphs to the issue of consumer harm. Although he states that consumer harm is "immediate and easily discernable," what harms does he, in fact, discern? One is the extra disk space that the operating system takes up for capabilities that the consumer will not use (even though consumers have a large degree of flexibility about which components to load). Another is that of parents needing to make the effort to remove the browser because they do not want their children to be able to browse the Web (despite the fact that the browser contains parental controls to limit children's use). But isn't it common for virtually all computer applications (and many other products) to have some features that we do not use? Do I suffer monopoly harm because I have never got to use my rear window defogger in Texas? And doesn't it take some effort for consumers to customize any product? You have to preset radio buttons, turn on lights, set clocks and so forth. It is disingenuous for the judge to claim that Microsoft harms consumers in any of these ways. Missing from Judge Jackson's list of harms are any harms normally associated with monopoly. Check out any economics textbook. You will find high prices, reduced output and, perhaps, lower quality. Judge Jackson is virtually mum on these points except to acknowledge that Microsoft's browser was very good and cheap. These economic harms are not mentioned by Judge Jackson because there are none to be found. In our book, my co-author and I examined Microsoft's impact on a broad range of computer software, and our results make clear why Microsoft's competitors feel so threatened. Software prices fell by an average of 15 percent from 1985 to 1995, except in markets where Microsoft competed. Those markets experienced a 65 percent drop in prices. Spreadsheet and word processor prices were not falling until Microsoft's products started to become the standard. Even in markets where Microsoft attained a very large market share, it lowered price. Along with these price declines, we found that Microsoft became dominant only where it had the highest quality product, as measured by third part product reviews. The fact that its applications were more successful on the Macintosh demonstrated that its ownership of the operating system was irrelevant to its success. Magazine reviews clearly indicate that Microsoft's products were considered superior to those of competitors. For example, comparison reviews of Macintosh spreadsheets covering the period of 1986 to 1996 found Excel to be the best (or tied for the best) spreadsheet in 83 percent of the cases. Its average score in the MacUser reviews that we found was 4.78 compared to 4.2 for Lotus 1-2-3 and 4.5 for Resolve. The Macintosh version of Microsoft Word received a top rating in 60 percent of the cases where a statement was made about the best word processor. Its average score since 1987 in MacUser was 4.21 compared to 3.7 for WordPerfect and 4.0 for MacWrite. In the PC market, Excel won (or co-won) 74 percent of the comparisons (28 of 38), but the leading spreadsheet, Lotus 1-2-3, squeaked out but a single win (3 percent) since Excel's introduction. In comparison reviews that gave numerical scores, Excel won every time, except twice early on when it was found to be too slow because it ran under Windows (as opposed to DOS). Even in those cases, the reviewers giving it the low scores considered Excel to be the most capable spreadsheet if one had sufficiently powerful hardware. Microsoft's low prices and generally superior products have not been good for its competitors. Some of these firms found a pliant Department of Justice, willing to do their bidding so as to handicap what is probably the most competitive firm in the industry. Unfortunately, they seem to have found a judge who will do the same. Stan Liebowitz is professor of managerial economics at the University of Texas at Dallas and co-author with Stephen Margolis of the book Winners, Losers & Microsoft, from The Independent Institute in Oakland, Calif. |
