The Microsoft Antitrust Case

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The Microsoft Antitrust Case
A Case Study For MBA Students
by Nicholas Economides* Revised April 2003

Abstract This case study discusses briefly the economic and legal issues pertaining to the antitrust case of the United States and a number of States against Microsoft.

* Stern School of Business, New York University, New York, NY 10012, (212) 9980864, fax (212) 995-4218, http://www.stern.nyu.edu/networks/, neconomi@stern.nyu.edu Copyright ©, N. Economides

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Contents 1. 2. 3. 4. 5. 6. 7. Facts ............................................................................................................................. 3 Antitrust Law On Monopolization And Attempting To Monopolize .......................... 7 Economics Of Markets With Network Effects ............................................................ 9 The Issue Of Low Prices ............................................................................................ 12 DOJ’s Monopolization Theory................................................................................... 15 Effects On Consumers ................................................................................................ 17 Court of Appeals Decision ......................................................................................... 19 7.1 Analysis of the Court of Appeals Decision ......................................................... 20 1. Monopolization of the operating systems market for PCs .................................. 20 2. Attempting to monopolize the Internet browser market ...................................... 21 3. Tying Internet Explorer with Windows ............................................................... 21 4. Trial Proceeding and Remedy .......................................................................... 21 5. Judicial Misconduct by Judge Thomas Penfield Jackson .................................... 21 8. Final Settlement.......................................................................................................... 22 8.1 Summary of Proposed Microsoft Settlement of November 6, 2001 ................... 22 A. Provisions seen as favorable to Microsoft........................................................ 22 B. Provisions seen as favorable to the plaintiffs ................................................... 22 C. Duration............................................................................................................ 23 D. Conclusion ........................................................................................................ 23 9. Further Reading .......................................................................................................... 23 10. Questions For Students ........................................................................................... 24 11. References ............................................................................................................... 25

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The Microsoft Antitrust Case
This case is intended as a teaching tool. It presents essential aspects of the Microsoft case, but is not exhaustive. It rather pays special attention to aspects of the case that are best to illustrate key concepts to students. For a more comprehensive study of all aspects of the case including a full discussion of remedies, the reader is referred to Economides (2001). 1. Facts

Microsoft is a large diversified computer software manufacturer with one of the highest valuations in the world. Microsoft produces the Windows family of operating systems for personal computers and servers. It also produces applications software that run on the Windows family of operating systems, most notably the very successful MSOffice Suite consisting of Word (word processor), Excel (spreadsheet), PowerPoint (presentations), Outlook (e-mail and news), and Access (database). 1 Almost all Microsoft products are complementary to a member of the Windows family of operating systems for...
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