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T A B L E__T A L K Is free software finally gaining ground in the OS wars? Discuss Linux vs. NT and others in the Digital Culture area of Table Talk - - - - - - - - - - R E C E N T L Y Let's Get This Straight Music industry to webcasters: Pay up! The ghosts in our machines The god of the information age is a trickster Generation byte - - - - - - - - - - BROWSE THE - - - - - - - - - -
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- - - - - - - - - - Indeed, the DOJ is not relying on predatory pricing charges in U.S. vs. Microsoft; instead, the government is trying a more nuanced case of illegal bundling -- tying an inferior product to a monopoly product. However, if you accept the argument that predatory pricing rules don't really apply to Microsoft, then the same circumstances responsible for that exemption -- free distribution and zero marginal costs -- also support the rather fantastic conclusion that monopoly power can't really exist in the software marketplace, either. And only monopolies are forbidden from bundling. "It's dangerous to say never," says Rule, "but I don't think the notion of monopoly has a whole lot of weight in the current environment." "Sure, most people look at the computer industry and say -- 'oh gee, Microsoft accounts for a very large amount of operating systems shipped on PCs today' -- but monopoly power is not defined by market share," Rule says, quite accurately. In antitrust law, monopoly power is the ability to set prices in a given market. No matter how little a competitor's market share, no matter that computer manufacturers testify that they have no practical alternative, Rule argues that because software distribution and marginal cost are negligible, competitors could instantly supply the entire market if Microsoft's prices became exorbitant. "Ergo, Microsoft doesn't have monopoly power to set prices," concludes Rule. To prove its point, Microsoft's defense briefs -- and now the leaked "Halloween memos" as well -- repeatedly point to Linux in order to illustrate how cheap it can be to develop and distribute a fully functional operating system. (Don't forget that DOS cost Bill Gates only $100,000 in 1980.) Competition, even potential competition, Rule argues, abounds, restraining software prices across the board. This sort of talk makes professor White apoplectic: "If you believe that, there's a bridge I can get you a reasonable price on. Everybody says it's easy to enter their market. It's bullshit." (Indeed, Coca-Cola once argued that neighborhood lemonade stands proved low barriers to entry in the soft-drink business.) White says that Microsoft's dominance doesn't come from its professed low prices or superior functionality, but from the intrinsic market inclination for software compatibility. Demand for the first fax machine couldn't have been very high, White explains, but a network of fax machines exponentially upped the value of each individual unit. We don't buy Windows because we like it, the network theory goes, we buy Windows because everybody else has Windows. Developers build Windows applications because Windows has such a large installed base, and new computer buyers want a full array of applications -- so we buy Windows. Actual barriers to entry are therefore very high in the operating system market, says White, maybe impossibly high, after a standard is in place. Ergo, Microsoft is a monopoly. "This is one proposition that anyone with a computer can evaluate as well as anyone else," says Kevin Arquit, former director of the bureau of competition for the Federal Trade Commission and current attorney for Sun Microsystems. "Frankly, I understand why Microsoft's saying it's not a monopoly. But by taking that point of view, it hurts their credibility across the board," he says. "They're just inviting some kind of change." Such a "change," some observers suggest, could take the form of revisions in antitrust laws and regulations. "Attempts to apply conventional rules don't get you very far," explains UC-Berkeley economics professor Joseph Farrell, who testified at the Senate Judiciary Committee hearings on software competition in November. "I think there are legitimate questions for antitrust agencies to create some new guidelines or for Congress to possibly step in." A Judiciary Committee staffer who asked for anonymity said he didn't believe Microsoft's claim of exceptional status outside of conventional antitrust law stood "a snowball's shot in hell" -- but if the courts rule in favor of Microsoft's claim, "then yeah, we might look into something." For his part, Judiciary Committee Chairman Orrin Hatch believes the century-old Sherman Act is flexible enough to rein in Microsoft. But he recently told a receptive audience at a Washington conference that, if the courts buy Microsoft's arguments, "in effect giving Microsoft a free pass to monopolize Internet-related technologies, [it] would have policy consequences of tremendous proportion, and would ultimately lead to some form of government regulation." In other words, if Microsoft gets the courts to agree that there's no such thing as a software monopoly, the victory could provoke the other branches of government to rewrite the definition of monopoly for the digital age. And even if Microsoft wins, it could lose. Mike Romano writes about Microsoft for the New York Times, Wired magazine and Seattle Weekly.
Let's Get This Straight Microsoft's staggering profits overshadow the courtroom fireworks of the antitrust trial's first week. Let's Get This Straight As the Microsoft trial begins, forget the browser war and follow the money. |
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