The Microsoft Antitrust Case

Topics: Microsoft, Internet Explorer, Microsoft Windows Pages: 32 (11221 words) Published: August 25, 2010
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...

References: Amicus Curiae Brief Of Professor Lawrence Lessig, United States v. Microsoft, Civil Action No. 98-1232 (TPJ). Amicus Curiae Brief Of Professor Nicholas Economides, United States v. Microsoft, Civil Action No. 98-1232 (TPJ), at http://www.usdoj.gov/atr/cases/ms_tuncom/major/mtc-00022465.htm . Areeda, Phillip and Louis Kaplow (1997), Antitrust Analysis, Aspen Law & Business. Brinkley, Joel and Steve Lohr (2000), U.S. v. Microsoft, McGraw Hill. Cass, Ronald A., (1999), “Copyright, Licensing, And The ‘First Screen’,” Boston University, School of Law. Cass, Ronald A., and Keith N. Hylton, (1999), “Preserving Competition: Economics Analysis, Legal Standards And Microsoft,” Boston University, School of Law, Law & Economics Working paper no. 99-1. Conclusions Of Law, United States v. Microsoft, Civil Action No. 98-1232 (TPJ) & State of New York v. Microsoft Civil Action No. 98-1233 (TPJ). Davis, Steven J., Jack MacCrisken, and Kevin M. Murphy, (1998), “Integrating New Features Into The PC Operating System: Benefits, Timing, And Effects On Innovation,” mimeo. D’Aspremont, Claude, Jaskold-Gabszewicz, Jean, and Thisse, Jacques-Francois, (1979), “On Hotelling’s ‘Stability in Competition’,” Econometrica, vol. 47, pp. 1145-1150. Economides, (1984), The Principle of Minimum Differentiation Revisited,” European Economic Review, vol. 24, pp. 345-368, pre-publication copy at http://www.stern.nyu.edu/networks/The_Principle_of_Minimum_Differentiation_ Revisited.pdf . Economides, Nicholas (1996), “The Economics of Networks,” International Journal of Industrial Organization vol. 14, no. 2, pp. 675-699, http://www.stern.nyu.edu/networks/top.html . Economides, Nicholas (1998), “Competition and Vertical Integration in the Computing Industry,” in Competition, Innovation, and the Role of Antitrust in the Digital Marketplace, Jeffrey A. Eisenach and Thomas M. Lenard (eds.), Kluwer Academic Publishers 1998, http://www.stern.nyu.edu/networks/98-11.pdf .
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Economides, Nicholas (2001), “United States v. Microsoft: A Failure of Antitrust in the New Economy,” UWLA Law Review, at http://www.stern.nyu.edu/networks/UWLA.pdf . Economides, Nicholas, and Fredrick Flyer (1998), “Compatibility and Market Structure for Network Goods,” Discussion Paper EC-98-02, Stern School of Business, N.Y.U., http://www.stern.nyu.edu/networks/98-02.pdf . Elzinga, Kenneth G., and David E. Mills, (1998), “PC Software,” mimeo. Evans, David S., and Richard L. Schmalensee, “Be Nice to Your Rivals: How the Government is Selling an Antitrust Case Without Consumer Harm in United States v. Microsoft,” in Did Microsoft Harm Consumers? Two Opposing Views, American Enterprise Institute-Brookings Joint Center for Regulatory Studies, Washington DC 2000. Evans, David S., Albert Nichols, and Bernard Reddy, (1999), “The Rise And Fall Of Leaders In Personal Computer Software,” mimeo., NERA. Findings of Fact, United States v. Microsoft, Civil Action No. 98-1232 (TPJ) & State of New York v. Microsoft Civil Action No. 98-1233 (TPJ). Fisher, Franklin M., and Daniel L. Rubinfeld, “United States v. Microsoft: An Economic Analysis,” in Did Microsoft Harm Consumers? Two Opposing Views, American Enterprise Institute-Brookings Joint Center for Regulatory Studies, Washington DC 2000. Fisher, Franklin M., Written testimony, Civil Action No. 98-1232 (TPJ) & State of New York v. Microsoft Civil Action No. 98-1233 (TPJ). Hatch, Orrin (1999), “Antitrust in the Digital Age,” in Competition, Innovation, and the Microsoft Monopoly: Antitrust in the Digital Marketplace, Jeffrey A. Eisenach and Thomas M. Lenard (eds.), Kluwer Academic Publishers 1999. Klein, Benjamin, (1999), “Microsoft’s Use Of Zero Price Bundling To Fight The ‘Browser Wars’,” in Competition, Innovation, and the Microsoft Monopoly: Antitrust in the Digital Marketplace, Jeffrey A. Eisenach and Thomas M. Lenard (eds.), Kluwer Academic Publishers 1999. Lenard, Thomas M., (2000), “Creating Competition in the Market for Operating Systems: A Structural Remedy for Microsoft,” mimeo. The Progress & Freedom Foundation. Levinson, Robert J., R. Craig Romaine, and Steven C. Salop, (1999), “The Flawed Fragmentation Critique of Structural Remedies in the Microsoft Case,” Georgetown University Law Center, Working Paper No. 204874.
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Litan, Robert E., Roger G. Noll, William D. Nordhaus, and Frederic Scherer, “Remedies Brief Of Amici Curiae In Civil Action No. 98-1232 (TPJ).” McKenzie, Richard B. (2000), Trust on Trial, Perseus Publishing. Reback, Gary L. et al., Memorandum Of Amici Curiae In Opposition To Proposed Final Judgment, Civil Action No. 94-1564. Plaintiffs’ Memorandum In Support Of Proposed Final Judgment, United States v. Microsoft, Civil Action No. 98-1232 (TPJ). Reddy, Bernard, David Evans and Albert Nichols (2000), “Why Does Microsoft Charge So Little For Windows?,” mimeo. United States v. Microsoft, conference at New York University (May 5, 2000), in streaming video at http://www.stern.nyu.edu/networks/video.html . United States v. Microsoft, final judgment (November 12, 2002), at http://www.dcd.uscourts.gov/98-1232cq.pdf .
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