Microsoft Case Competition Policy - Prof. D. Neven 27 January 2005 Ursula Ferrari, Gözde Oktay, Nathalie Müller, Reinier De Jong Overview Chronology Technical Background Microsoft’s Behaviour Relevant Markets Dominant Position Abuses of Dominant Position:
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Competition Policy - Prof. D. Neven
27 January 2005
Ursula Ferrari, Gözde Oktay, Nathalie Müller, Reinier De Jong
interoperability needs to be ensured between products of different suppliers.****
Legal background and application to Microsoft Case
The Community shall have as its task, by establishing a common market and an economic and monetary union and by implementing common policies or activities referred to in Articles 3 and 4, to promote throughout the Community a harmonious, balanced and sustainable development of economic activities, a high level of employment and of social protection, equality between men and women, sustainable andnon-inflationary growth, a high degree of competitiveness and convergence of economic performance, a high level of protection and improvement of the quality of the environment, the raising of the standard of living and quality of life and economic and social cohesion and solidarity among Member States.
(g) A system ensuring that competition in the internal market is not distorted
They both serve the principals set out in Articles information 2 and 3 of The EC Treaty
Article 82 impose “special responsability” on companies with dominant position, while Article 81 doesn’t.Relationship between Articles 81 and 82
“establishing a system ensuring that competition in the internal market is not distorted by firms holding a dominant position”
Article 82 does not provide for a definition
“Firms holding a substantial amount of market power in one or more of the markets in which they operate”1
“any kind of behaviour by a dominant undertaking that appreciably distorts competition or exploits customers in the market in question”.
“…facility or infrastructure which is essential for reaching customers and/or enabling competitors to carry on their business, and which cannot be replicated by any reasonable means”.
Case; London European-Sabena
-it is justified on business grounds…
The intention to eliminate a competitor when having a dominant position cannot be accepted as a business strategy.
Sheds light on the motivation of an undertaking
-element for the level of fine…
Internal communication at Microsoft concerning strategy choices regarding its competitor UNIX: (internal mail)
“[Do] we treat UNIX like NetWare or like Vines? i.e. love it to death (invest a lot of money and kill it slowly) or ignore it (invest no money on the expectation it will die quickly)”.
“A firm only abuses its dominant position when the exclusion of competitors is not the consequence of better performance”.
To be considered a good sportsman you are expected to follow the rules and to play a “fair game”
The ECJ states that;
(Case27/76 United Brands v. Commission)
“ a position of economic strength enjoyed by an undertaking which enables it to prevent effectivecompetition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, its customers and ultimately of the consumers”
“very large market shares are in themselves, and save in exceptional cases, evidence of the existance of a dominant position”1
High market shares (over 50%)1 held over a period of time are considered enough evidence that an undertaking has a dominant position.
The two requisites are fulfilled in the Microsoft case;
A dominant position may be limited in time but that does not change the present situation of a company’s market power!
To exert market power…
….only possible if potential competitors are prevented from entering the market.
Strong “network effects” constitute a difficult barrier to entry for potential competitors.
“the more popular an operating system is, the more applications are written to an operating system, the more popular it will be among users.”
This ‘positive feeback loop’ constitutes an actual barrier to entry for new entrants and this hinders effective competition.
Measure the market by considering:
Unit by shipments; 64,9% of the market
Revenues; 61,0% of the market
However; the “network effects” that do exist (?) are the result of “internal Windows competence”, hence “Available skill-sets and cost/availability of support. (in-house or external).
Commission finds that an important barrier to entry is the fact that withholdinginteroperabilityinformation constitutes an, although artificial, barrier to entry.
-Client PC operating system and,
-Work group operating system.
“…an isolated analysis of the competitive conditions on the market for work group server OS – ignoring Microsoft’s overwhelming dominance in the neighbouring client PC OS – fails to deliver an accurate picture of Microsoft’s true market power”.
Unnecessary for Microsoft to try to distinguish the situation since there are such strong links…
Not Supplying Interoperability Information
Bundling of Windows Media Player with Windows
Reduce market share by bundling own complement
Tying of Windows Media Player with Windows
Very probably halting innovation and foreclosing competition
Neglects consumer benefit of choice:
OR ? productDiscussion
Motta, M. productCompetition Policy, Theory and Practice. Cambridge University Press (2004)
Ahlborn, Evans and Padilla.The Antitrust Economics of Tying: A farewell to Per Se Illegality (April 2003).
Kühn, Stillman and Caffarra. Economic Theories of Bundling and their Policy Implications in Abuse Cases: An Assessment in Light of the Microsoft Case (September 2004).Used Secondary Literature