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Government Intervention in Individual Markets: A Look at Government Intervention and Antitrust Law via the Microsoft Case Growth and Development in the US Economy In light of recent developments, I took a different approach to this paper. The Microsoft Antitrust case has been somewhat of a phenomenon that has become one of the most prominent cases in recent years. Because of this, I decided to look at government intervention into individual markets, along with antitrust law, via that particular case. I am of the opinion that we can learn a great deal by using that particular ongoing litigation. Antitrust law protects the public from companies that attain an undue domination of the marketplace via mergers, tying 1 product to another, vertical integration, and other practices tending to eliminate competition or bar entry into the market to newcomers. In the early 1980 s, Microsoft was a much smaller company than it is today.
However, it had already established a reputation of being a predator, a greedy predator. They were known to terminate licenses mercilessly once they figured out a way to clone a given technology, regardless of whether it was legal or not. Back then, Microsoft had some enthusiastic competition. The biggest of which were Borland (programming), Ashton-Tate (databases), Visicalc and Lotus (spreadsheets), as well as Word star and WordPerfect (word processors). All of these companies have now either merged out of existence or are completely defunct, with the exceptions of Borland and Lotus (which are barely afloat).
Microsoft now has the leading product in each sector of the market once occupied by these firms. The company was responsible for ridding itself of these early competitors by either buying them out or simply driving them into the ground. This early disregard set the tone for how Microsoft does business even today. Microsoft's advantage comes from their domination of operating systems (OS).
By definition, if the OS maker creates applications, they will run better with the OS than a third partys, and the OS owner can, over time, create modifications that will make this even more so, (Rapacious 1). Microsoft has the power to leverage their dominance in operating systems (Microsoft currently has its Windows software in over 90 % of all PCs) to gain a large market share in the various application sectors. They have always been able to do this and as a result have been able to get, or achieve, whatever it is that they have wanted. This is the vertical integration that the antitrust laws talk about. In a July 1994, settlement, the Justice Department came to an agreement with the software giant over the antitrust charges it had filed against the company. The charges were brought after the department found out that Microsoft was giving personal computer manufacturers a discount on their OS when the PC manufacturer would pay the company a royalty for each computer sold, including those without MS-DOS or Windows software installed.
The practice gave PC makers little incentive to install competing programs since they would have had to pay a royalty to both the competitor and Microsoft, (Ramstad 1). The settlement only dealt with this single count and left Microsoft alone to continue performing its numerous other anti-competitive practices. In the spring of 1995, Judge Stanley Sporting rejected the deal that the Justice Department settled on. He did so on the grounds that: 1. The government refused to give the court enough information about the agreement; 2. The deal was too narrow; it failed to deal with issues like OS/application leverage, and allegations that Microsoft intentionally made changes to Windows that made third party applications hard to run; 3.
The parties did not adequately consider anti-competitive issues; 4. The deal was unsatisfactory when it came to enforcement and compliance mechanisms. Around the time of the settlement, some suggestions started to come about how to deal with Microsoft. Stewart Alsop suggested that Microsoft be forced to document the APIs in Windows, so that other companies could legally clone it.
That would still leave Microsoft an eighteen month head start on each release, (Rapacious 3). It was also suggested that the company be broken up. This way, the operating system and the applications would be separated into different companies and the playing field would become more level. In late August 1995, U. S.
District Judge Thomas Penfield Jackson ended what had become a thirteen-month judicial review by signing the agreement Microsoft and the Justice Department had come to. The review had been elongated by Judge Sporting rejection of the deal. The signing, however, did not take the heat off Microsoft's proverbial back. The Justice Department had already begun investigating some of their concerns about the companys practices regarding new software and whether they were complying with the agreement. This investigation became the court case we have all been hearing about in these last few months. By the time the Judge Jackson signed the agreement, the government was already looking into Microsoft's decision to include access to its on-line service, the Microsoft Network, into its Windows 95 operating system.
Competitors were afraid that this would allow the company to once again take advantage of its monopoly power in operating systems to gain a large share of the on-line market. A mere three months after its release, the company announced that the Microsoft Network had already enrolled more than 525, 000 members. They also had projections putting them over the 2 million member mark by the end of the next year (1996). This went on to fuel its competitors worst fears. America Online, Prodigy and CompuServe were among those that had long been arguing that Microsoft had an unfair advantage with its on-line access included in the OS. The industry's fears are partially correct.
Having a button on the desktop works. People click on it, said Adam Schoenfeld, of Jupiter Communications, (Cooper 1). Microsoft's response to the situation at that time was merely to suggest that there was no evidence showing Msn's close connection to Windows 95 had tilted the tables into its favor. In September of 1996, Microsoft received a written request for information, (this is known as a civil investigative demand) from the Justice Department. Netscape had accused the company of going beyond vigorous competition into the realm of illegal tactics in the browser war, (Just.
Dept. Examining 1). Netscape also charged, through letters to the Justice Department, that Microsoft had violated its 1994 consent decree (settlement) with the government by offering PC manufacturers a $ 3 discount on Windows 95 for giving their browser, Internet Explorer, a more prominent place on computer screens than Netscape's browser, Navigator. Further complicating Microsoft's problems, they received another civil investigative demand in May of 1997. This time, the Department of Justice was seeking internal documents having to do with Microsoft's planned purchase of WebTV for $ 425 million. WebTV is a start-up producer of set-top boxes that bring the Internet to television sets, (US Requests 1).
A major industry is expected to develop from the delivering of the Internet via television and other home appliances. So, the opportunity to be among the first in a very promising market is what attracted the company to WebTV. About the same time the government was looking into Microsoft's purchase, Oracle (another software producer) announced it was buying control of Navio Communications Inc. Navio was developed by Netscape Communications, which, [facing] ever-stiffer competition from Microsoft decided to conserve its financial resources and shed Navio, (US Requests 2). Microsoft officials pointed to this move by Oracle in response to the governments most recent allegations. They claimed that the deal was a sign that their purchase of WebTV was prompting capable companies to get into the market, thereby promoting competition.
Drawing further attention to itself, Microsoft invested in Apple Computers. They purchased $ 125 million in non-voting stock. This act was seen by many, upon first glance, as an effort to further dominate the computer market by swallowing another competitor. However, if one were to consider the pressure that Microsoft was, and is, enduring from the government, one can see an entirely different motivation for the investment. Apple was struggling and this purchase of non-voting stock was designed to help keep the company afloat. As long as Apple remains intact, the computer giant we know as Microsoft has another competitor that it can point to in its fight against antitrust violations.
In October of 1997, the government finally asked a judge to order Microsoft to stop requiring PC makers to include Internet Explorer when they install Windows 95 in their computers. Attorney General Janet Reno, who referred to the company as a monopoly several times in her press conference, claimed that the company had violated the 1994 settlement, and that the Justice Department would seek a $ 1 million per day fine if they didnt stop the practice. She said, This administration has taken great efforts to spur technological innovation, promote competition and make sure that the consumers have the ability to choose among competing products. [This} action shows that we wont tolerate any coercion by dominant companies in any way that distorts competition. (Lebanon 2) The governments petition was designed to receive an order that would bar Microsoft from compelling PC manufacturers to accept their browser as a condition of receiving operating system. It also asked the court to order the company to notify Windows 95 users that they can use any compatible Internet Browser, as well as provide instructions on how to remove Internet Explorer from their computer. In response to the petition, Bill Gates, Microsoft's chairman and chief executive, said that his company was not violating the antitrust agreement. He proclaimed his belief that his company had every right to improve and add to the basic features of Windows.
He went on to say that he hoped to further improve Windows by adding new capabilities, such as speech recognition and machine vision. The Justice Department has several key issues that it has to deal with in its case against Microsoft. By deal with, I mean they have to get around Microsoft's answers to their charges. First, the department is accusing the company of threatening computer makers who delete the Internet Explorer icon. The company answers this by claiming that computer manufacturers are free to shi...
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Research essay sample on Government Intervention And Antitrust Law
