Microsoft vs. DOJ
June 24, 1998

If You Can't Beat It, Leave It
by Yi-Hsin Chang (TMF Puck)

"The world of antitrust is reminiscent of Alice's Wonderland: everything seemingly is, yet apparently isn't, simultaneously. It is a world in which competition is lauded as the basic axiom and guiding principle, yet 'too much' competition is condemned as 'cutthroat.' It is a world in which actions designed to limit competition are branded as criminal when taken by businessmen, yet praised as 'enlightened' when initiated by the government. It is a world in which the law is so vague that businessmen have no way of knowing whether specific actions will be declared illegal until they hear the judge's verdict -- after the fact."
-- Alan Greenspan

News reporters like to describe Microsoft as the 800-pound gorilla. The media had a feeding frenzy when Microsoft Chairman Bill Gates had a pie thrown in his face and when Windows 98 crashed during a recent demonstration. Britain's The Economist magazine depicted Gates as a giant spider weaving a web to catch its prey. But the real threat to a free market economy, the real threat to consumer interests is, in fact, the government itself.

The problem is that all antitrust legislation, especially the Sherman Antitrust Act of 1890, is fundamentally flawed. History proves that repeated government efforts to break up so-called monopolies have accomplished nothing except to restrict the competitive process and destroy the very companies that should be held up as model businesses. Inevitably, it is the most successful and innovative businesses -- ones that market aggressively and cut prices while increasing production -- that fall prey to antitrust regulators. In the early 1900s, the model company was Standard Oil, and in the 1940s, it was the Aluminum Company of America (ALCOA). Today it is Microsoft and Intel.

In the case of Standard Oil, it is widely believed that the company jacked up prices and engaged in predatory practices. But, in fact, the price of kerosene fell to less than $0.06 a gallon in the late 1890s from more than $0.50 in the early 1860s. Far from having a monopoly on the industry, Standard Oil had at least 147 competitors that were refining petroleum when the company was dissolved in 1911.

The most appalling antitrust suit prior to the ongoing attack on Microsoft involved ALCOA, which, as the only primary aluminum producer of its time, was a monopoly. Unlike a coercive monopoly, however, ALCOA focused on efficiency and cost cutting instead of hiking up prices to gain profits. Aluminum ingot prices had dropped to less than $0.22 a pound in 1945 from more than $2.00 in the 1890s. But it was this very efficiency that led to its downfall. The court ruled that ALCOA's "skill, energy, initiative" excluded competitors, and that if the company had been less efficient, there would have been more competition.

The government's antitrust hawks don't seem to realize the difference between a coerced and non-coerced monopoly. There's nothing wrong with a non-coerced monopoly. In a free market, companies attain monopolies by selling good products at reasonable prices and profiting from low costs. If a monopolist decides to raise prices or stops offering the most advanced or innovative products, it opens the door to new competitors. Even if Uncle Sam had not intervened, other competitors such as Texaco or Gulf would have grown and diminished Standard Oil's dominance. Even though the government failed in its attempt to dismantle IBM, Big Blue is no longer the "menace" it once was.

Coerced monopolies, on the other hand, have been forced by government regulation. The railroad companies that operated unhampered by competition in the latter half of the nineteenth century got that power through government land grants. The government decided to subsidize these railroads in the 1860s in response to public demand to extend the railroads west to California -- despite the fact that there wasn't enough traffic to justify the expansion. The railroads' abusive monopolies would not have been possible without government sanction. The case is the same with AT&T, which became a monopoly and had to be broken up because federal and state governments restricted competition against it in the first place.

That brings us back to Microsoft. This is a company that has brought us an operating system that has become an industry standard and continues to undergo improvement, useful computing tools such as Microsoft Word and Excel, an Internet browser that finally gave us an alternative to Netscape, and helpful websites such as CarPoint and Expedia Travel. Although Microsoft has gained substantial market share in many of these categories, it doesn't have a monopoly in any of them. It has competitors that make operating systems, word processing programs, browsers, and websites, and its dominance may well be short-lived. Even if one considers 80% to 90% control of a market monopolistic, this is hardly a coercive monopoly, but one in which the leader has won its position through aggressive marketing and innovative thinking.

One can't help but notice that the driving force behind this vicious vendetta against Microsoft -- by antitrust regulators, competitors, the media, and average citizens -- is not a sense of justice but bitter jealousy. Increasingly, the case is about Bill Gates, not the company he started. "It's hard to feel sorry for a guy who's worth nearly $50 billion," reads a June 8 Fortune article that goes on to describe Gates as a "a pushy dweeb with a bad haircut and an ego to match the size of his bank account." The vindictive personal attacks and obsession with Gates's "obscene wealth" is a classic case of green envy.

Some Microsoft competitors, especially Sun Microsystems and Netscape Communications, have been crying foul play when they should've been working on coming out with better, more innovative products. The saying goes: "All's fair in love and war." All's fair in business as well.

I, for one, cheered when Microsoft broke off talks with the Justice Department. Unfortunately, when the government is involved, might is right, and no business -- not even one run by the richest man in the world -- is mightier than Uncle Sam. If the U.S. government tries to dismantle or substantially weaken the company, Microsoft should simply move its campus from Redmond, Washington, to a country like Japan or Singapore, where the government promotes business, rather than stifling it.