“The Microsoft Media Debate”: Decide Based On Evidence And The Law, Not Economic Dogma

By: Dan Mogin

Peter Scheer’s editorial “Better Gates than a Judge as Microsoft CEO” is an example of what’s wrong with the “debate” regarding Microsoft in particular and the antitrust laws in general. It is really nothing more than a thinly veiled argument for unbridled laissez-faire economics. But those are not the economics of a free market, competition or a democratic society.

Frankly, I don’t like the fact that Microsoft has come to dominate such an important market. Generally, that type of domination, however obtained, tends to reduce competition, technological innovation and consumer choice. On the other hand, it is hard to get worked up over the fate of a multi-billion dollar wanna be monopolist, Netscape. We have to wonder why the Justice Department is using its scarce resources when the market participants could easily afford to litigate the issues in a suit between themselves. By the same token, however Microsoft, Netscape and other high tech players have their own very effective PR and legal teams; the nation’s editorialist don’t have to do their proselytizing for them by a misguided attack on the antitrust laws. Microsoft is hardlybeing oppressed an over bearing Government.

The purpose of the antitrust/pro-competition laws is to protect consumers, to encourage free and open competition in the marketplace and to prevent unreasonable restraints of any trade or commerce. Each of those words and phrases means exactly what they appear to say. We want truly free and open markets. We want maximum competition. The goal is for consumers to receive better goods and services at the lowest cost.

It is no coincidence that Adam Smith was both the first free market economist and the first antitrust economist. It is also not an accident of history that Smith wrote his capitalist manifesto, The Wealth of Nations, in 1776, at the same time that America’s Founding Fathers were declaring their political independence. Economic self-determination and political self-determination go hand in glove. The Supreme Court has called the antitrust laws as the Bill of Rights for the economy.

Speaking of the Bill of Rights, Scheer complains that “the government’s claim is based on just 52 words in a consent decree.” That argument doesn’t work. Freedom of the press is based on just 9 words out of only 45 words in the entire First Amendment. The Ten Commandments aren’t much longer.

Scheer also confuses antitrust enforcement with regulation. This is a rhetorical device frequently used to tar antitrust with the well deserved discreditation of regulated or planned economies. Unlike regulation, however, the antitrust laws do not dictate outputs or prices. To the contrary, they attempt to allow customers and competitors in affected markets to challenge alleged restraints to effective competition. This is the legal equivalent of local control or decentralization. The purpose of the antitrust laws is to enhance competition and protect the free market, not regulate it. Antitrust litigants, including government enforcers, do not intervene in the operations of free markets, but attempt to restore freedom and competition — the status quo ante — through legal process checked by judges and juries. Unlike laissez-faire, antitrust does not allow sheer market power to corrupt the functioning of the free market. The antitrust laws were enacted specifically to prevent such corruption.

The antitrust laws also are not intended to punish successful companies simply because of their success or large companies simply because of their size. Because we want consumers to get the best for the least through the free market, only conduct that excludes competitors, stifles innovation, limits supply or raises prices is prohibited. Monopolies that are lawfully obtained, such as those with superior products, prices or management, are only liable if they abuse their monopoly power and exclude, stifle or limit competition. Can Scheer unequivocally say that Microsoft’s Internet browser practices don’t raise any of these issues or that they can be dismissed out of hand before any evidence is presented?? Or is he arguing for some form of high tech immunity??

The references to the AT&T and IBM antitrust cases of the 1970’s are also inaccurate. AT&T agreed to divest itself of certain assets including the local telephone companies known as the Regional Bell Operating Companies and agreed to a consent decree. IBM defeated the governments’ attempts to break it up. The stocks of AT&T, the RBOCs and their spin-offs has increased many times over as these companies have continued to evolve. (The same thing happened in the Standard Oil case — no doubt that there were many editorials decrying the break-up of the oil monopoly as judicial micro management.) In contrast, after winning its case, IBM refused to change. As a result, it was punished by the market and went through a long period of decline, downsizing and restructuring followed by rebuilding. Both the computer and telephone markets experienced profound technological change and innovation. Which companies are better off ?? Which consumers received better goods and services at a lower price?? These are the $64,000 questions. But neither case represents judicial regulation of high technology.

The Government’s case is about preventing regulation — restrictions on products, innovation, prices and outputs — of an emerging market by a private interest with vast market power. They may be right and they may be wrong. But what’s the problem with simply litigating it and making a decision based on the evidence and the law, rather than economic dogma and attacks on the antitrust laws ??

Daniel J. Mogin is a San Diego attorney specializing in antitrust and consumer protection matters.


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