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Old 08-16-2000, 08:49 PM   #11
Darth Qui-Gon
Posts: n/a


* Deep breath *

Hookay. First‚ Dave I promise you there’s a way to connect to this forum without IE 5. Tom‚ I shall endeavor to answer your question in the most brief manner possible‚ but it will still be quite long. I hope you will take the time to read it– it’s something everyone should know. No flame wars from here.

The majority of what follows is taken from court documents either in whole or in part.

First‚ let me start by explaining the law.

A. Maintenance of Monopoly Power by Anticompetitive Means
Section 2 of the Sherman Act declares that it is unlawful for a person or firm to “monopolize . . . any part of the trade or commerce among the several States‚ or with foreign nations . . . .” 15 U.S.C. § 2. This language operates to limit the means by which a firm may lawfully either acquire or perpetuate monopoly power. Specifically‚ a firm violates § 2 if it attains or preserves monopoly power through anticompetitive acts. See United States v. Grinnell Corp.‚ 384 U.S. 563‚ 570-71 (1966)

B. Maintenance of Monopoly Power by Anticompetitive Means
The threshold question in this analysis is whether the defendant’s conduct is “exclusionary” - that is‚ whether it has restricted significantly‚ or threatens to restrict significantly‚ the ability of other firms to compete in the relevant market on the merits of what they offer customers.

If the defendant with monopoly power consciously antagonized its customers by making its products less attractive to them - or if it incurred other costs‚ such as large outlays of development capital and forfeited opportunities to derive revenue from it - with no prospect of compensation other than the erection or preservation of barriers against competition by equally efficient firms‚ the Court may deem the defendant’s conduct “predatory.”

[P]redation involves aggression against business rivals through the use of business practices that would not be considered profit maximizing except for the expectation that (1) actual rivals will be driven from the market‚ or the entry of potential rivals blocked or delayed‚ so that the predator will gain or retain a market share sufficient to command monopoly profits‚ or (2) rivals will be chastened sufficiently to abandon competitive behavior the predator finds threatening to its realization of monopoly profits.

Where do you want to go today?™

Applications Barrier to Entry:
Firms that do not currently produce Intel–compatible PC operating systems could do so. What is more‚ once a firm had written the necessary software code‚ it could produce millions of copies of its operating system at relatively low cost. The ability to meet a large demand is useless‚ however‚ if the demand for the product is small‚ and signs do not indicate large demand for a new Intel–compatible PC operating system. To the contrary‚ they indicate that the demand for a new Intel–compatible PC operating system would be severely constrained by an intractable “chicken–and–egg” problem: The overwhelming majority of consumers will only use a PC operating system for which there already exists a large and varied set of high–quality‚ full–featured applications‚ and for which it seems relatively certain that new types of applications and new versions of existing applications will continue to be marketed at pace with those written for other operating systems. Unfortunately for firms whose products do not fit that bill‚ the porting of applications from one operating system to another is a costly process. Consequently‚ software developers generally write applications first‚ and often exclusively‚ for the operating system that is already used by a dominant share of all PC users. Users do not want to invest in an operating system until it is clear that the system will support generations of applications that will meet their needs‚ and developers do not want to invest in writing or quickly porting applications for an operating system until it is clear that there will be a sizeable and stable market for it. ...Still‚ while a niche operating system might turn a profit‚ the chicken–and–egg problem (hereinafter referred to as the “applications barrier to entry”) would make it prohibitively expensive for a new Intel–compatible operating system to attract enough developers and consumers to become a viable alternative to a dominant incumbent in less than a few years.

Microsoft’s dominant market share is protected by the same barrier that helps define the market for Intel–compatible PC operating systems. Because Microsoft’s market share is so dominant‚ the barrier has a similar effect within the market: It prevents Intel–compatible PC operating systems other than Windows from attracting significant consumer demand‚ and it would continue to do so even if Microsoft held its prices substantially above the competitive level.

Finally‚ it is indicative of monopoly power that Microsoft felt that it had substantial discretion in setting the price of its Windows 98 upgrade product (the operating system product it sells to existing users of Windows 95). A Microsoft study from November 1997 reveals that the company could have charged $49 for an upgrade to Windows 98 — there is no reason to believe that the $49 price would have been unprofitable — but the study identifies $89 as the revenue–maximizing price. Microsoft thus opted for the higher price.

For further evidence of Microsoft’s monopoly power‚ one need only examine the five largest OEMs. Gateway and IBM‚ which in various ways have resisted Microsoft’s efforts to enlist them in its efforts to preserve the applications barrier to entry‚ pay higher prices than Compaq‚ Dell‚ and Hewlett–Packard‚ which have pursued less contentious relationships with Microsoft. Furthermore‚ Microsoft expends a significant portion of its monopoly power‚ which could otherwise be spent maximizing price or improving their product‚ on imposing burdensome restrictions on its customers — and in inducing them to behave in ways — that augment and prolong that monopoly power. For example‚ Microsoft attaches to a Windows license conditions that restrict the ability of OEMs to promote software that Microsoft believes could weaken the applications barrier to entry.

In addition‚ Microsoft charges a lower price to OEMs who agree to ship all but a minute fraction of their machines with an operating system pre–installed. While this helps combat piracy‚ it also makes it less likely that consumers will detect increases in the price of Windows and renders operating systems not pre–installed by OEMs in large numbers even less attractive to consumers.

C. Microsoft’s Actions Toward Other Firms
Microsoft’s monopoly power is also evidenced by the fact that‚ over the course of several years‚ Microsoft took actions that could only have been advantageous if they operated to reinforce monopoly power. I will describe a few of these later.

Middleware technologies‚ have the potential to weaken the applications barrier to entry. Microsoft was apprehensive that the APIs exposed by middleware technologies would attract so much developer interest‚ and would become so numerous and varied‚ that there would arise a substantial and growing number of full–featured applications that relied largely‚ or even wholly‚ on middleware APIs. The applications relying largely on middleware APIs would potentially be relatively easy to port from one operating system to another. The applications relying exclusively on middleware APIs would run‚ as written‚ on any operating system hosting the requisite middleware. So the more popular middleware became and the more APIs it exposed‚ the more the positive feedback loop that sustains the applications barrier to entry would dissipate. Microsoft was concerned with middleware as a category of software; each type of middleware contributed to the threat posed by the entire category. At the same time‚ Microsoft focused its antipathy on two incarnations of middleware that‚ working together‚ had the potential to weaken the applications barrier severely without the assistance of any other middleware. These were Netscape’s Web browser and Sun’s implementation of the Java technologies.

Microsoft’s behavior is anticompetitive across the board‚ but their treatment of Netscape provides a well documented and clear example of this behavior‚ so I will focus that.

Jedi Assassin‚ Cloned Wars
Darth Qui-Gon‚ Microsith Mercenary
The ability to clone software does not make you an innovator.
Join the Jedi Temple.

[This message has been edited by Darth Qui-Gon (edited August 16, 2000).]
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