Anti-Trust Assignment
...t because they fear the threat of big business but rather because monopolies and other companies with substantial market power (often around 75-80%) tend to be unresponsive to competitive pressures levied by other suppliers in the industry. When this occurs, they have little incentive to keep prices at the level they would reach in a competitive market as a consequence; less is produced (and consumed) in the market, creating an efficiency loss. On the other side of the coin, some argue that mergers perform an important role in the efficient functioning of the economy. There are conditions under which monopoly may be more efficient than competition. When an industry has increasing returns to scale, two small firms will require more resources to produce a given amount of output than one large firm. Trying to keep two such firms in existence by, for example, preventing merger will keep the economy inside its production-possibilities frontier, making the economy production inefficient Anti-Trust Legislation - Economic Efficiency or Consumer Law Where originally, anti-trust law was introduced to protect the entrepreneur’s ability to enter the market place based on “economic efficiency” some argue that over time it has ultimately shifted in favour of the consumer and become “consumer protection law”. In particular, critics argue that consumer groups of today play a dominant role in persuading competition authorities to counter merger attempts and dismantle the monopoly control held by leading industry players. Under the guise of the consumers right to “price protection” competition authorities such as the US Department of Justice have recently pursued cases where such a question can be asked - are anti-trust laws being used to ensure competition and thus a thriving market economy, or are they using anti-trust law to react to the fears of lesser performing market competitors? US vs. Microsoft The court case U.S v. Microsoft is one such case where the actions of the US Department of Justice beg the question as to whether anti-trust laws were in place to protect consumers in the free market economy or in fact to protect lesser performing competitors in the Information Technology industry. The Crime In the case, The U.S. Department of Justice and 20 US states under pressure from Microsoft’s competitors Sun Microsystems, Netspace and others, claimed that Microsoft had allegedly violated U.S antitrust laws by engaging in a variety of practices aimed at excluding rivals and potential rivals and, was conducting business in violation of the Sherman Anti-Trust act of 1890. In particular, The US Department of Justice argued that Microsoft’s most visible anti-competitive act was the physical integration of Internet Explorer into Windows. In addition, Microsoft signed a variety of exclusionary contracts involving browser use and promotion with computer manufacturers. · The first argument, was that Microsoft contractually required computer manufactures that licensed Windows 95 on new computers also install Internet Explorer, and by selling these two together at retail. · The second argument , was that Microsoft placed additional requirements on manufacturers that licensed Windows: "they could not remove the Internet Explorer icon from the Windows desktop; they could not place any icons on the desktop that were bigger than the Microsoft icons; and they could not modify the boot sequence or have programs that automatically launch at its conclusion, which could give users an easy way to choose Navigator over Internet Explorer. Under US Anti-Trust law, it is illegal to leverage a monopoly position in one product to force companies to agree to distribute another of the monopoly owner's products at the expense of a competitor. Microsoft wrote exclusionary contracts, and tied access to Windows upon their acceptance In 1998, in response to Microsoft’s introduction of its Internet Explorer product, The U.S. Justice Department and 20 state attorneys general filed an anti-trust suit against Microsoft, charging the company with abusing its market power to impede competition, and its main competitors. In his response to the anti-trust case, Bill Gates, the founder and chairman of Microsoft, responded by arguing “It's only through volume that you can offer reasonable software at a low price. Standards increase the basic machine that you can sell into the market...I really shouldn't say this, but in some ways it leads, in an individual product category, to a natural monopoly: where somebody properly documents, properly trains, properly promotes a particular package and through momentum, user loyalty, reputation, sales force, and prices builds a very strong position with that product.” I begin by showing the exclusive contracts and tying Microsoft has used to promote their own products.” (http://www.albany.edu/~al5567/hypertext/) The Ruling Largely as a result of Microsoft’s unwillingness to accept that they were contravening anti-trust law, Judge Thomas Penfield Jackson made the decision that Microsoft should be punished and ordered that Microsoft be broken up into two smaller companies in April 2000. In its defence, Microsoft argued that Judge Jackson’s ruling, was not focussed on competition law, but was in fact motivated by the judges personal desire to bring down a large successful company. Microsoft also argued, that its attempts to innovate in a free market were under attack by rival companies jealous at its success, and that government litigation was merely their pawn. In a full page ad in The Washington Post and The New York Times Microsoft delivered "An Open Letter to President Clinton From 240 Economists On Antitrust Protectionism." It said, in part, "Consumers did not ask for these antitrust actions - rival business firms did. Consumers of high technology have enjoyed falling prices, expanding outputs, and a breathtaking array of new products and innovations. ... Increasingly, however, some firms have sought to handicap their rivals' races by turning to government for protection. ... Many of these cases are based on speculation about some vaguely specified consumer harm in some unspecified future, and many of the proposed interventions will weaken successful U.S. firms and impede their competitiveness abroad." (http://www.independent.org/tii/open_letters/open_letter_antitrust.html) In the short term, Microsoft, were in fact successful in their appeal against the verdict, and Judge Jackson's remedy was overturned on the grounds that interviews he gave to the media the case gave an appearance of bias against Microsoft . However, this was not the final ruling, and in 2001, The D.C. Circuit, found that Microsoft had abused its monopoly power position and remanded the case for consideration of a proper remedy, under Judge Colleen Kollar Kotelly. In Septmeber 2001 after 3 years of legal wrangling with the US department of Justice, The U.S. Department of Justice, now under the administration of US President George Bush, finally found little grounds for their original rulings and, announced that it was no longer seeking to break up Microsoft and would instead seek a lesser anti-trust penalty. On November 2001, the DOJ reached an agreement with Microsoft to settle the case. The proposed settlement required Microsofot to share its application prgoraaming interfwaces with third companies and appoint a panel of three people who will have full access to Microsofts systems, records, and source code for five years to ensure compliance, but did not require Microsoft to change any of its code nor prevent Microsoft from tying other software with Windows in the future. Microsoft – anti-competitive predator or succesful multi-national? In the case against Microsoft, it was not the consumer but in fact Microsoft’s competitors and "consumer advocates" who complained to The U.S. Department of Justice. Their argument, was that due to the fact that the Windows desktop displayed Internet Explorer and MSN icons, consumers were forced to use those programs rather than competitor’s browsers like Netscape or other...