Enterprises endowed with virtue and talent, even if very often at the start they seem mean and common, always gradually climb higher, and they never pause or rest till they have reached the height of glory.
Giorgio Vasari
Lives of the Artists (1550)
Biographer Giorgio Vasari could not envision a force so strong it could stop the progress of enterprises based squarely on virtue and talent. It was his good fortune to be writing well before the invention of antitrust, a peculiar set of laws built largely for the purpose of waging war on society’s most virtuous and talented members.
Most people believe government can and should promote competition among private businesses by prohibiting “predatory” or anti-competitive behavior. Monopoly is bad and competition is good, the theory goes, and government has a responsibility to prevent the former and foster the latter. The truth, though, is more complicated than this. A look at the antitrust suits filed on May 18 against Microsoft makes the case.
Is Microsoft Too Big?
Microsoft invented and owns the operating system preferred by the owners of 90 percent of the personal computers in the nation. The result has been a financial gusher for CEO Bill Gates and his investors. Since going public in 1986, Microsoft’s market value has soared, from $525 million to $212 billion. Today, the company employs 25,000 and boasts annual sales of $14 billion.
Microsoft is big, but is it a monopoly? Regulators think they can look at the size and number of firms in an industry and deduce how much competition is taking place, and consequently whether consumers are being treated well or poorly. That rationale was used in many of the biggest “trust busting” cases in antitrust history and was still in use in the 1980s, for example, to justify restrictions on branch banking.
In reality, the size of a firm and the degree of concentration in an industry are determined by a probably infinite number of factors, many of them fundamentally unmeasurable. They include consumer preferences and level of knowledge, the organization of retail and wholesale markets, the pace and nature of technological change, regulatory environments, corporate cultures, and even (or especially) the character of individual investors and entrepreneurs. It is impossible to construct a model that could take all variables into account and predict the “right” number of firms for a particular industry.
Empirical research has found that the size of firms and their market shares have no bearing on whether consumers are served well or ill. Some industries dominated by a small number of huge firms are intensely competitive, while others characterized by many small firms appear to be less so. The presence of many companies divvying up a market is sometimes evidence of collusion or other market barriers preventing the most efficient firm among them from capturing a larger share of the market.
Competition, in short, is a process rather than a measurable state of affairs. It is thus impossible to know how many firms “ought” to exist in a particular industry or how big they should be. If those things are unknowable, then one of the three rationales used for applying antitrust laws against Microsoft is discredited.
Microsoft Doesn’t Act Like a Monopoly
Antitrust enforcers also search for behavior that fits the model of a monopoly. The classic monopoly restricts output in order to raise prices. Insulated from competition, it has little incentive to find better ways to satisfy its customers, so innovation is rare.
If Microsoft is a monopoly, it is plainly failing to act the part. It aggressively cuts its prices, expands output, and leads the industry in innovation. It even gives away its Internet browser, called Explorer.
If competition is a process, then the only way to judge whether competition is taking place is to look at the actual behavior of firms in the market. If the biggest firm in the industry is not raising prices, restricting output, or failing to innovate, then by definition it is not a monopolist. This is so clearly the case regarding Microsoft that the antitrust suits against it ought to be laughed out of court.
Guilty of Victimless Crimes?
The suits against Microsoft allege that it attempted to undermine its competitors by bundling Microsoft’s web browser with Windows 98, forbidding licensees from advertising competing software, and discouraging personal computer manufacturers from adding or subtracting icons from Window’s initial user interface.
Microsoft seems to stand accused of committing “victimless crimes.” Those “restrictive licensing agreements” were made between willing parties, or else they would not have been signed. If Microsoft was using force or fraud against its competitors, it could be brought to justice for violating laws that specifically prohibit such acts as extortion and bribery. But no such charges have been brought.
It is more likely that Microsoft was able to overtake firms like Novell and Oracle because they failed to produce affordable and reliable computer network software. No victims here. Microsoft’s decision to bundle its web browser with Windows 98 was not just sound marketing, but perfectly consistent with the company’s property rights in both products. Similarly, it is difficult to see whose rights are violated when Microsoft outbids other firms for the world’s best programmers.
Microsoft is violating no one’s rights, and we consumers are reaping huge benefits.
A Threat to Freedom?
The reader may still harbor a lingering fear that Microsoft’s near-monopoly over the operating systems for personal computers poses a threat to our freedom of choice, at least sometime in the future. But this concern, too, is misplaced.
Microsoft’s market power is much less impressive when placed alongside other elements of the computer, communications, entertainment, and data transmission industries. For example, clicking an icon appearing on Window’s desktop is only one of many ways to reach the Internet. Once there, customers may use Microsoft’s own browser to download a competing browser for future use. And the World Wide Web is just a small corner of the universe of communication and avenues for exchanging data.
Microsoft will have a difficult time competing with firms outside its niche. The PalmPilot from 3Com Corp. directly challenged Microsoft in the personal planner market and won. America Online’s 12 million members swamp the number who subscribe to Microsoft Network. Netscape still controls 60 percent of the browser market. Microsoft’s WebTV is likely to be pushed aside by cable giants such as Time Warner Cable. Microsoft has yet to put on the market a portal to the Internet that can compete with Yahoo! and Excite.
The War on Virtue and Talent
Microsoft is being targeted for action by state and federal antitrust enforcers not because of what it has done wrong, but because it does so many things right. Mean and common at its start, Microsoft used virtue and talent to reach the height of popular and financial success. Its success inspires admiration and respect among most people, but not all.
There is an atavistic instinct lodged deep in the hearts of some men and women that leads them to envy and resent the success of others. It has probably always been so, and unfortunately probably will always be so.
Antitrust laws seem designed to be used by the envious and resentful to take down those who others admire. Antitrust laws are so vague they allow pro-consumer conduct, such as cutting prices, to be construed as anti-consumer. Antitrust’s objective, to increase “competition,” is conveniently unmeasurable. Remedies in antitrust cases invariably violate the property rights of true entrepreneurs, often by requiring them to carry their opponents on their backs during the steepest stretches of the path to success, a climb that true entrepreneurs make unassisted.
While it may not be possible to cleanse human nature of the stains of envy and resentment, it should nevertheless be possible to write laws preventing those unsavory emotions from placing government in their service. Abolishing antitrust laws would be one worthy step in that direction.
