The Microsoft Antitrust Case Essay, Research Paper

The Microsoft Antitrust Case

The case against Microsoft was brought buy the U.S. Department of Justice, as well as several state Attorneys General. Microsoft is accused of using and maintaining monopoly power to gain an unfair advantage in the market. The case has been under observation for a long time, but the Justice department is having trouble coming up with substantial evidence against Microsoft. Specifically, the Department must prove:

 That Microsoft has monopoly power and is using it to gain unfair leverage in the market.

 And that Microsoft has maintained this monopoly power through “exclusionary” or “predatory” acts(Rule).

Some say that Microsoft is only taking advantage of its position in the market and using innovative marketing strategies to attract new customers. They have chosen to implement a market development strategy to attract new customers who are looking for a system that has Internet capability. Microsoft feels that by integrating their Internet Explorer web browser technology into Windows, they are only improving its overall functionality available to the customer.

Microsoft began expanding into the browser area because of increasing threat from Netscape and Java. Java is the programming language used to make Netscape. Programs that are written in Java can work on any PC, whether it has Windows on it or not. That is why there is a great threat to the Windows environment. The more Netscape is used, the more other vendors will begin writing Netscape compliant programs and the more Java will be used, which puts a damper on Windows. So Windows introduced their Internet explorer to combat the increasing Netscape usage. It did not do this to create a monopoly, but to protect itself. If people realize that Java programs can be run on ANY PC, then they will realize that they do not need to buy Windows.

Some say that Microsoft began it’s “illegal” agenda when it began requiring PC manufacturers to sign a license agreement that said that if they were going to have Windows preinstalled on their new systems, that the Windows Internet Explorer must also be installed. Although it is possible for consumers to install other browsers onto Windows and use them, critics say that Microsoft still has an unfair advantage. It also keeps other browser companies from being able to consult with PC manufacturers to put their browser on the PC from the beginning. PC manufacturers did not hesitate to comply with Microsoft’s new standard because they did not want to lose the ability to manufacture computers with Windows installed on them, as Windows holds a great market share and most consumers only buy PC’s with Windows already installed on them. It would be detrimental for a company to refuse compliance of Microsoft’s new standard. This is another complaint of critics. That manufacturers had no other choice but to do what Microsoft said, out of fear of their own company losing profits.

Microsoft also “pulls the strings” it has with other ISP’s and software companies. There is a lot of software that is not made by Microsoft that comes with the Windows package. Some of these include, AOL, Prodigy, AT&T, Quicken, just to name a few. Microsoft gives these companies and their icons and programs are displayed on the Windows desktop. In return, these companies must give preferential treatment in promotion and the like to Microsoft. One example is AOL’s new 4.0 browser is specially designed to work best with the Microsoft Internet Explorer 4.0 browser. Much of the increase in AOL’s clientele base can be attributed to the combined efforts of Microsoft and AOL.

Microsoft is not only working with ISP’s, but also with companies that build and maintain web pages and servers. Microsoft also gives them preferential treatment through Windows and in return, they make their web pages to be compliant with the Microsoft browser. Most web pages even have a little disclaimer that says, “Best viewed with Microsoft IE4.0”. In this way, Microsoft can again hold its position in the browser market.

When Netscape refused to bow before Microsoft, Microsoft decided to do everything in their power to limit the amount of resources that Netscape could access. Their methods were often compared to those of Andrew Carnegie’s, of Carnegie Steel, in the early 1900’s. When a competitor would come into town, he would lower his prices way below cost to drive the competitor out of business. He could afford to do this because he already had the established capital to sustain him. He would just dip into reserves of cash for the time being, and the lowering of prices would not put him out of business. This was deemed illegal and his practice is one of the main reasons that the Sherman Antitrust Act was enacted. According to the Act, no company can engage in monopolistic activities intentionally. If they lowered their prices temporarily to drive out competition, while depending on their cash reserves to hold them over, this would be illegal. But, if they do not lower the price of their products below cost, then their strategy is just a form of true competition. Microsoft appears to have followed the latter practice. Microsoft began by giving away products that were identical to what Netscape was selling. While this would be illegal if Microsoft’s expense on these products was great, it is not, because software production cost is virtually next to nothing. So for Microsoft to offer software for free is not illegal.

Though fierce competition does promote technological innovation, Microsoft does use its monopoly power to establish its dominance in the browser world. Microsoft uses its strong position with the Windows operating system to “force” PC manufacturers and software companies to comply with Microsoft’s standards. Almost every software company has some connection to Microsoft. Microsoft uses these connections to make sure that no other competitors will succeed. Microsoft has countless connections with numerous ISP’s, software companies, server companies, and just about any other company that has something to do with a computer. Microsoft knows that it has the dominant operating system on the market right now and every software company, ISP, etc, wants to be part of it. If they are not, then they are likely to go under. The more and more companies that join Microsoft, the more and more Microsoft’s monopoly power will grow. Pretty soon, Microsoft will own 100% of the market not only in browsers, but I believe in many other areas, such as software production and distribution and even what kind of computer, its hardware, etc, that can run Windows. I do not believe that Microsoft’s monopoly agenda solely contains their “browser war”, but that it extends to a much higher scale.

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Web Sites:

http://www.mindspring.com/~dmataconis/microsoft.htm#Case Resources

http://www.mindspring.com/~dmataconis/sherman.txt

http://www.cnn.com/US/9805/18/federal.complaint/