Ludwig von Mises Institute

The Mises Institute monthly, free with membership

September 1995
Volume 13, Number 9

Leave it to the federal government to generate sympathy, albeit inadvertently, for the richest man in the world. For five years, Bill Gates and Microsoft have been hounded by the Justice Department for engaging in "anticompetitive practices."

Just when a settlement was in sight, a federal judge, unelected and unaccountable, rejected the compromise. Judge Stanley Sporkin, who resembles Jason Robards playing the miserable Willie Loman in Death of a Salesman, seems to be auditioning for a starring role in Death of the Market.

"It is clear to this court," Sporkin recently wrote, "that if it signs the [settlement] decree presented to it, the message will be that Microsoft is so powerful that neither the market nor the government is capable of dealing with all of its monopolistic practices." Anyone with an inkling of free-market understanding should at this point fall over laughing.

The government, as we all know, has a hard time tying its own shoes. But can Sporkin be serious when he speaks of the impotence of the market? What exactly does he mean by "monopolistic practices"? Here are some examples:

Charge #1: Microsoft planned to purchase Intuit, Inc., a personal-finance software manufacturer. The Justice Department, however, blocked the sale, claiming that such an acquisition would give Microsoft total dominance in the personal-finance software industry.

Allegedly, having "total dominance" in the industry would mean higher prices and less product for the consumer, and an unfair advantage for Microsoft over its competitors.

This common misunderstanding of monopoly simply does not stand to reason. First of all, a truly unfair advantage would be one in which the government actually prohibited competition with Microsoft. Presently, there is absolutely nothing that keeps another software company from marketing its own product. That Microsoft's rivals don't take this opportunity is certainly not Bill Gates's fault.

Secondly, since there are no coercive barriers to entry, if Microsoft did charge a higher price for the Intuit software, another company would no doubt seize the opportunity and offer a competing product at a lower price.

The claim that supposed monopolies always lower production and raise prices simply does not jibe with historical experience. Standard Oil and Alcoa in their heyday, for example, consistently offered more product at a lower price than their competitors, despite myths to the contrary.

And what about property rights? In preventing Microsoft from purchasing Intuit, the government thereby forbids Intuit's stockholders to sell their shares to whomever they please. When the government, under the guise of "antitrust," can restrict a property owner's freedom to sell, say good-bye to freedom in the marketplace.

Charge #2: Microsoft has in the past "pre-announced" the sale of "vaporware," or non-existent software, in order to scare away competition. Such a tactic, competitors whine, is unfair and should be illegal.

This particular charge, it should be noted, is completely unsubstantiated. There is no evidence that Microsoft has ever announced the production of a product that it did not intend to make. To be sure, Microsoft has in the past failed to deliver a piece of software on time, but no plan has ever fallen through altogether.

Assuming the accusation were true, however, where is the compelling case for government intervention? Obviously, Microsoft can derive only minimal advantage from announcing a product that never comes to fruition--a series of broken promises will eventually drive away customers.

After a while, competitors, too, will realize what Microsoft is up to and decide to go ahead with their own product, the very event which Microsoft was allegedly trying to avoid.

In addition, nothing stops Microsoft's competitors from pre- announcing. Outlawing preannouncements could only benefit Microsoft. As Bill Gates himself says, when you ban advertising in the cigarette market, it's the big tobacco companies, not the small ones, that stand to gain. The market, therefore, handles pre-announcements, both false and true, quite well.

Charge #3: Microsoft plans to install its own network software on future versions of Windows. Because the largest computer makers sell machines with Windows preinstalled, Microsoft will have an unfair advantage over competitors like America Online and CompuServe.

So Microsoft has an advantage, because its screens will feature a tiny icon of its product. So what? The question ought to be: is Microsoft's advantage due to market or anti-market forces?

When it comes to basketball, Charles Barkley has an "unfair" advantage over Barney the Dinosaur, but the rules of the game are the same for both players. Furthermore, the government never decreed that Charles could practice his jump-shot and that Barney could not. In other words, no one rigged the game.

Likewise, the superior position Microsoft enjoys is not the result of coercion, but of free competition. If they had had the foresight ten years ago, America Online, CompuServe, and others could have entered the operating systems software market and attempted to out-sell Microsoft's Windows. They didn't, and now they're poorer than they otherwise might have been. Boo-hoo.

Although every attack on Microsoft is demonstrably spurious and unworthy of court attention, the Justice Department appears only more determined in its "trust-busting" rampage. Assistant Attorney General Anne Bingaman is reportedly "excited" at the prospect of introducing even more evidence against Microsoft. And Microsoft can be sure to expect more of the same--calumnious half-truths and bad economics.

In an Orwellian perversion, the government and the Marxist media label "anticompetitive" what are clearly just the opposite: highly competitive actions on the part of Microsoft. It's little wonder that Microsoft's loudest critics are not software users (who, judging from sales of Windows and Excel, seem quite satisfied with the software giant), but bitter competitors.

Mrs. Bingaman should leave Bill Gates alone and let the market itself determine whether Microsoft provides what its customers want. So long as she's employed to bust monopolies, she should focus her energies on real ones. For instance, the U.S. Post Office has mysteriously escaped her attention.

-------------------------------------------

Geoffrey Brent McGuire, a 1995 summer fellow at the Mises Institute, completed undergraduate economics at Harvard and is now earning his PhD at the University of Texas

Back