NCPA - National Center for Policy Analysis

Microsoft Case Is About Politics, Not Economics

October 29, 1997

Last week, the Justice Department announced a new initiative against Microsoft, the world's largest software company. Justice alleges that it failed to abide by a 1995 consent decree, which ended an antitrust case against Microsoft. In particular, Justice is concerned about Microsoft including its own web browser in copies of its Windows operating system. Justice believes that this could allow Microsoft to monopolize the market for web-browsers.

The real issue, however, is not about Microsoft's business tactics, which are, to be sure, tough. In fact, Microsoft's competitor, Netscape, dominates sales of web-browsers and holds 60 percent of the market. What is really going on are two things. First, Attorney General Janet Reno, under increasingly heavy attack for dragging her feet on the investigation of Democratic campaign law violations in 1996, has gone after Microsoft as a way of changing the subject.

Second, targeting Microsoft for antitrust violations helps reinvigorate the Democratic Party's base. The Democratic left has long been the main supporter of antitrust laws, ever since their origin in the late 19th century, because they abhor great wealth, large corporations and capitalism in general. Many liberals still subscribe to the view of the late Supreme Court Justice William O. Douglas, who said in his last speech as chairman of the Securities and Exchange Commission in 1939:

"One aspect of modern life which has gone far to stifle men is the rapid growth of tremendous corporations. Enormous spiritual sacrifices are made in the transformation of shopkeepers into employees....The disappearance of free enterprise has led to a submergence of the individual in the impersonal corporation in much the same manner has he has been submerged into the state in other lands."

Supporters of the antitrust laws would have us believe that their only goal is to protect the consumer, but in reality their concern is that bigness per se is bad. Over the years many of the most important antitrust cases were brought against corporations where there was no evidence of monopoly pricing or any other action that was injurious to consumers. They were brought simply because a company's market share was considered too large.

However, economists generally have failed to find any adverse economic consequences even when a single company dominates a particular market. Economist Arnold Harberger of the University of Chicago once estimated that elimination of all monopolies would increase consumer welfare by just $2 per person. And Federal Reserve Chairman Alan Greenspan has noted that "it takes extraordinary skill to hold more than 50 percent of a large industry's market in a free economy." Such companies "deserve praise, not condemnation," he said.

In practice, monopolies seldom gouge consumers and extract monopoly profits. The reason is that, except in the case of government-sanctioned monopolies, there is always competition from abroad the threat of future competition, as long as there is free trade and no legal barriers to entry. As economist Joseph Schumpeter once remarked, the kind of competition that really matters is from "the new commodity, the new technology, the new source of supply, the new type of organization."

Looking only at a corporation's market share today tells us almost nothing about what will happen in the future. According to Forbes Magazine, only a fifth of the 100 largest corporations in 1917 remain on the list today. Fifteen years ago, IBM dominated the personal computer market for both hardware and software. Today, it is barely a player. It may become the same for Microsoft as well.

Even some liberals, like economist Lester Thurow, now admit that the antitrust laws are obsolete. The Microsoft case is just the dying gasp of a legal dinosaur.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, October 29, 1997.


Browse more articles on Government Issues