Not soft on Microsoft

By Megan McArdle

I suppose everyone is fascinated by whatever aspect of the Microsoft/EU antitrust case validate their political ideas. For many people, it is the triumph of the state against the big, bad corporation; for others, it is an unwarranted intrusion into free markets. Here are the aspects that interest me, though:

  1. Antitrust lags the market in a way that threatens to make it meaningless. Just as the IBM antitrust case was quickly made irrelevant by the shift of market power from hardware to software, the EU has come in to force open a market that no longer seems either so important, or so thoroughly dominated by Microsoft. Now Apple and Google are the rising threats, and undoubtedly, in a decade they too will be under fire from some firm you've probably never heard of. In the future, we may see antitrust rulings coming just in time for the bankruptcy sale.


  2. The EU regulatory commission seems notably more hostile to American companies than to locals. If EU antitrust authorities come to be seen as having a mandate to force European products on unwilling consumers, they will do a great deal of damage to both European markets, and world trade.


  3. Many of the EU's supporters on this are hoping that the union will become a defacto super-regulator, which can use its market size to force changes on international companies. Henry Farrell writes:

    It is possible for companies such as Microsoft to sell different products in the EU and the US. But it is very expensive to have to do this, as well as often being politically awkward (when consumers would like what is on offer in another jurisdiction but can’t get it), and always organizationally highly inconvenient. The result is that companies are likely to make their products comply with EU rules across markets, except when the costs to so doing are very high indeed. This means that the European Commission is effectively becoming a regulator that substantially affects what is or isn’t sold in US markets too. The US administration has taken a hands-off (some might say supine) approach to preventing monopoly abuses in technology markets – the Commission is now in an excellent position to start to fill this regulatory vacuum. This should make for some interesting politics – while the US administration is likely to deplore this ruling, I don’t know that there is very much that it can actually do about it (especially given the continued controversy over its decision to roll over for Microsoft after the Bush administration came into office). It seems to me that the Commission has chosen its case very well, with respect to cementing its power over European information technology markets and increasing its international influence very substantially too. This should make for very interesting international politics.


    Certainly, there was a substantial forum-shopping aspect to this case; technology companies that couldn't compete in the US ran to friendlier European regulatory agencies with their complaints. There is no logical reason that competitive frictions between Real Networks, Sun Microsystems, or Novell, and Microsoft, should have been adjudicated in Europe.

    But Henry's optimism assumes that the effect of the regulatory breakup is to make consumers (rather than producers) better off. This seems a rather dubious assumption considering that it's major achievement so far has been forcing Microsoft to sell its software with fewer features at the same price as the fuller-featured product. Had the commission gone farther, and forced the company simply to entirely unbundle Windows Media Player, the result would have been to advantage Real, but deprive consumers of something they had been getting for free.

    Perhaps Microsoft will harmonize its versions. Or perhaps it will sell a dumbed down European version at the same price as the full-featured US product, while loudly announcing that they are doing so in response to EU antitrust regulations. Perhaps consumers will still get mad at Microsoft, instead of the commission. But I wouldn't count on it. This sort of political consideration will considerably constrain the commission's power. It will even do so for "invisible" changes, such as the efforts to get Microsoft to disclose its server hooks. Microsoft might just decide to keep Europe one version behind America, which would not bolster already weakening support for central EU regulation.

This article available online at:

http://www.theatlantic.com/business/archive/2007/09/not-soft-on-microsoft/1935/