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Microsoft in Wonderland

February 7, 2005

For those who thought that the Microsoft antitrust nonsense was over, think again.

In March of 2004 Microsoft was fined a record $648 million by the European Commission for exercising its (alleged) monopoly power in the operating systems market. The most important element of that alleged monopoly power was Microsoft's free inclusion of its program, Media Player, in its XP operating system. The Commission asserted that bundling Microsoft's Media Player with the new operating system gave Microsoft an unfair advantage in the media player market and thereby injured competition. As a remedy, the European regulators ordered the company to offer computer makers and consumers the option of buying a version of XP without Microsoft's Media Player.

Microsoft is currently in the process of complying with that regulation. But there is a problem. Microsoft has tentatively titled its stripped down XP operating system as "Windows XP Reduced Media Edition." Whoops! The problem, now assert the regulators, is that the new name makes the "stripped down" version of XP appear, well, stripped down and thus less desirable to consumers than the bundled version. But we can't have that! So Microsoft will have to come up with another name.

Now if all of this sound like something out of an Ayn Rand novel, I would have to agree with you. Let's see if I've got this straight. Microsoft first sells an XP operating system with Media Player included at no charge. Consumers are generally happy with that because they get an already bundled media player at zero out of pocked cost. (They are, of course, perfectly free to delete Microsoft's own media player and/or to download any rival media player.) Competitors who sell rival media players complain, however, that Microsoft's free bundling makes it harder for them to do business. And they bring all of this to the attention of the European antitrust regulators.

So the European regulators come in, absent any evidence of consumer abuse, and order Microsoft to sell a consumer inferior version of Windows XP so that rival media player competitors will have an opportunity to do more business. But, the coup de gras, the name of the consumer inferior version must not reveal that it is in fact consumer inferior! Indeed, Microsoft has been ordered to do nothing commercially that would make the consumer inferior operating system appear less attractive to consumers and that includes, apparently, naming the product correctly. Microsoft, in short, has been ordered in effect to lie about its new operating system in the title and all in the name of preserving "competition."

American antitrust law has always been a sorry mess but at least Microsoft did prevail recently in an almost identical battle in the U.S. to keep its web browser tied to its Windows operating system. Unfortunately, the European antitrust regulators have taken the worst of American antitrust "analysis" and made it even worse, that is, even more blatantly protectionist of competitors and dismissive of consumer welfare. Antitrust law is one U.S. export that both U.S. and European consumers could well do without.

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Dom Armentano is the author of Antitrust and Monopoly (Independent Institute, 1998) and Antitrust: The Case for Repeal (Mises Institute, 1999). He lives in Vero Beach, Florida. armentano@irene.net. Comment on the blog.


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