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The Crimes of Microsoft

The European Union’s order that Microsoft open its Windows operating system to products of competing manufacturers, such as media players and servers, was seen by the US Department of Justice as a rebuke. It therefore issued an official statement of derision: “In the United States,” it said, “the antitrust laws are enforced to protect consumers by protecting competition, not competitors.” But the fact is that the Sherman Antitrust Act was passed precisely in order to protect competitors not consumers, and the Department of Justice was therefore deriding not the European Union but the US law.

The Sherman Act was passed in 1890 after intense public pressure on Congress to do something about the Trusts that were taking over production in many industries, from oil and sugar to cars and office machines. The movement against the Trusts started in 1881 with an exposé of Standard Oil by journalist Henry Demarest. What had Standard Oil done to become the poster child for all that was wrong with monopolies? As a matter of fact, nothing that hurt consumers. On the contrary; Standard Oil came to dominate the market by reducing the price of its main product, kerosene. What it did do was make it impossible for other refiners to continue in business as independents. And in 1890 America this hit a nerve, even if consumers benefited from the Trust.

The tactics that Standard Oil used to crush its competitors then are the same tactics that Microsoft uses against its competitors today: It gave itself an unfair advantage. Standard Oil not only obtained lower freight rates from the railroads, it got the railroads to agree not to give the same discounts to anyone else. But Standard Oil did not seek to necessarily crush its competitors. It first of all wanted them to join the Trust. The problem was that these competitors cherished their independence. One participant described a meeting the refiners had with Standard Oil as follows: “We gave him [Standard Oil’s emissary] very distinctly to understand that we didn’t propose to go into any ‘fix up,’ where we would lose our identity, or sell out, or be under anybody else’s thumb.”

Interestingly, the terms that Standard Oil was offering were quite generous. In 1884 a refiner told Lloyd he had been offered a comfortable lifetime salary and shares in Standard Oil, but he would have none of it. “I want to make oil,” was his response.

The New York Times had exactly the same concerns as the refiners. An 1888 editorial explained that the American people “should remember that the existence of a monopoly-combination which controls an industry not only excludes competition in the work of supplying consumers, but in many cases also virtually deprives consumers of the right to enter this industry as manufacturers.”

Not even Senator Sherman thought that monopolies were bad for consumers. When he argued in behalf of his eponymous act in the Senate he said, “corporations tend to cheapen transportation, lower the cost of production and bring within the reach of millions comforts and luxuries formerly enjoyed by thousands.” But he still opposed them because they destroy “industrial liberty.” When Charles William Eliot, the President of Harvard, joined the fray, it was also not on behalf of consumers. His concern was with the political power that monopolies would amass and the detrimental effect it would have on democracy.

The Sherman Act states: “Every person who shall monopolize, or attempt to monopolize, any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony.” It is abundantly clear that Microsoft monopolizes the market for computer applications. It is also abundantly clear that Microsoft is not alone, what with Apple making the music that it sells incompatible with any other player except with its own ipod. All of these acts violate the antitrust law. The Justice Department should apply the law instead of rewriting it.

MOSHE ADLER teaches economics in the department of urban planning at Columbia and is the director of Public Interest Economics, an economic consulting firm. He can be reached at: ma820@columbia.edu.

 

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Moshe Adler teaches economics at Columbia University and at the Harry Van Arsdale Center for Labor Studies at Empire State College. He is the author of Economics for the Rest of Us: Debunking the Science That Makes Life Dismal (The New Press, 2010),  which is available in paperback and as an e-book and in Chinese (2013) and Korean (2015) editions.

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