## 3 ) A Recent Example

An incumbent monopolist is threatened by competition as a result of a new entrepreneurial technology. The monopolist makes its own imitative version of the new technology, and introduces it in the market. The market rejects the incumbent monopolist, instead preferring the innovative version of the new technology from the entrepreneur. Encouraged by this market success, a wave of new entrepreneurs brings forth a wide range of distinct products and offerings. The monopolist offers to pay the first entrepreneur not to compete, but is rejected. The monopolist reaches agreements with third parties in the distribution channels who agree not to distribute the entrepreneur's product. Unable to gain widespread distribution, the entrepreneur fails. The wave of entrepreneurship comes to a halt. The threat of competition passes, leaving the monopolist in place.

I begin with that abstract description of U.S. v. Microsoft because I seek to make several analytical points about competition policy looking forward. By removing the names of the firms and products, the analytical points are clearly exposed. Three pieces of intellectual baggage have made learning those forward-looking lessons very difficult. The firms involved are household names – the incumbent monopolist, Microsoft, is the most valuable corporation in the world. The products involved are ones we use every day, such as the web browser. There was a highly contested and very public trial. Seeing the forward looking lessons involves putting down that baggage.

The first analytical point may be a surprising one. From the competition policy perspective, U.S. v. Microsoft is an extremely dull case. Despite all the controversy and the contentious trial, when you get down to particulars, the case is simple. It is double surprising because the most controversial part of antitrust enforcement concerns a single firm’s efforts to prevent competition, so called “vertical” cases.

Using my abstract language reveals why Microsoft was found guilty and why it was so simple.

1. There was an existing monopoly.

In the case of U.S. v. Microsoft, the existing monopoly was the Windows operating system.

2. There was a threat to the existing monopoly.

In U.S. v. Microsoft, new technologies from the Internet, especially the browser and Java, were the threat. Widespread distribution and use of those technologies threatened to trigger new competition against Windows.

3. The existing monopolist blocked the competitive threat from coming to reality, cutting off the free market.

In U.S. v. Microsoft, by far the most important anticompetitive tools were contractual restrictions on PC manufacturers and Internet Service Providers. Formal contracts with PC manufacturers had many features to block widespread distribution of new technologies, including requirements to push Microsoft’s less desirable versions, bans on various valuable technical improvements, and so on. Informal but enthusiastically enforced extensions to the contracts banned distribution of competing technology, such as the Netscape browser. Internet Service Providers had to exclusively push Microsoft technology instead of superior alternatives. While there were many other anticompetitive acts, these distribution restrictions were the ones which moved the market away from what free markets would have chosen.