Fair Business: The Microsoft AntitrustCase Presentation By Betty Jean Wood CS485 Social Issues in CS December 7, 2004
What is a Monopoly? • A monopoly is the control of a product, market, or industry by one individual or company. Monopolies are characterized by the absence of competition. • Examples: • AT&T during the 1970’s • Standard Oil during the 1890’s
Is Microsoft a Monopoly? Not really • Microsoft actually does face market competition. • However, Microsoft controls a very large share of the Operating Systems, Productivity, and Web Browser Markets.
Monopolistic Competition • Monopolistic competition is a market structure that exists when a business with many potential competitors attempts to develop a differential marketing strategy to establish its own market share. • Microsoft technically is not a Monopoly in the true sense, but the company does engage in practices known as “monopolistic competition”.
Sherman Antitrust Act of 1890 • Passed by Congress to limit anti-competitive behavior. • Section 1: Trusts in restraint of trade is illegal. • Section 2: Monopolizing trade is a felony.
United States of America v. Microsoft • Anti-trust suit filed by the Justice Department May 18, 1998. • Four Violations of the Sherman Act: • Microsoft monopolized the PC Operating System Market and held control through anti-competitive means • Microsoft made unlawful exclusive arrangements in violation of both Section 1 and 2 of the Act.
United States of America v. Microsoft (con’t) • Microsoft attempted to unlawfully monopolize the Web Browser market. • Microsoft’s anti-competitive tying or bundling of Internet Explorer (IE) with the Windows operating system was in violation of Section 1 of the Sherman Act.
The Accusations • Microsoft bundled IE with Windows 95 and for 98 and up, IE is incorporated into the operating system. • Thus, consumers were being harmed because they were losing the ability to choose between IE and Netscape.
Accusations (con’t) • Microsoft forced OEMs to exclude Netscape Navigator from Windows 95 and to promote IE by preventing OEMs from removing the IE icon from the Windows desktop.
Accusations (con’t) • Microsoft made an agreement with AOL in which AOL would include IE browsing technology into it’s clients software in exchange for AOL’s icon to appear in the Windows’ Online Service Folder. • AOL was forbidden to promote or support any non-MS web browser.
Accusations (con’t) • Microsoft entered into an agreement with Apple Computer Corp., which required Apple to include IE with MacOS and to make it the default browser. • Allegedly, Microsoft forced Apple to this agreement by threatening to discontinue development of Mac Office (Microsoft's Office suite for MacOS).
Accusations (con’t) • Microsoft allegedly initially attempted to coerce Netscape to divide the web browser market. • Microsoft said to Netscape that it would develop web browsers for 32-bit Windows, while Netscape could develop web browsers for MacOS, UNIX, and 16-bit Windows.
After Trial Results • Microsoft is found guilty and was ordered to break up into two separate units – one for operating systems and one for other software. • Microsoft appealed. • The Justice Department under the Bush Administration dropped the break up and sought a less stringent punishment.
After Trial Results (con’t) • Microsoft’s new punishment required it to share its application programming interfaces with third-party companies. • It also had to appoint a panel of three people who will have full access to Microsoft's systems, records, and source code for five years to ensure compliance. • The punishment did not require Microsoft to change any of its code nor prevent Microsoft from tying other software with Windows in the future
After Trial Results (con’t) • Nine states and DC did not feel that the punishment was strong enough and sought for a stronger punishment. • As time went on all but one state, Massachusetts, dropped their bid for harsher penalties. • Massachusetts was denied appeal for stronger penalties against Microsoft.
Did Microsoft Play Fair? Microsoft’s Argument • Microsoft claimed that cross-promotional and exclusive agreements were common-place in business. • Microsoft claimed that it had a right to innovate and integrating IE into Windows is great part of software innovation. • Doing this would offer more benefits to consumers, who want an OS that does many things out-of-the-box.
Did Microsoft Play Fair? Microsoft’s Argument (con’t) • Microsoft dominated the market due to consumer demand. • Microsoft claimed they weren't being anti-competitive with Netscape since it didn't shut out Navigator from the marketplace. • It was trying to prevent Netscape from dominating the market.
Did Microsoft Play Fair? Pro-Microsoft Utilitarian Argument • Microsoft did what it could to maximize the happiness of their workers and shareholders. • Microsoft created an innovative operating system that does everything a user would want out-of-the-box. This would maximize the happiness of the consumer.
Did Microsoft Play Fair? Anti-Microsoft Utilitarian Argument • Microsoft was limiting the happiness of Netscape shareholders and workers and thus it was not being fair. • Microsoft was limiting the choice of consumers and thus limiting their happiness.
Did Microsoft Play Fair? Anti-Microsoft Utilitarian Argument (con’t) • Apple’s happiness was limited by Microsoft because Microsoft forced Apple to use IE over any other web browser. Microsoft took away Apple’s freedom of choice.
Did Microsoft Play Fair? Personal Opinion • Microsoft obtained a monopoly on the OS market due to consumer demand. • Microsoft tried to used their dominance of the OS market to conquer the Web Browser market. • Microsoft used “monopolistic competition” and anti-competitive practices to dominate the Web Browser market.
Conclusion • Microsoft, since the late 1990’s, has dominated the Operating Systems and Web Browser market. • The behavior that Microsoft exhibited bent or flat out broke the Sherman Act.
Side Notes • The European Union found Microsoft guilty of anti-competitive practices and fined the company $613 million. • Netscape released it’s web browser source code to the open source community as the Mozilla Foundation. • FireFox, the Mozilla Foundation's standalone web browser, is currently eroding IE market share