Microsoft is Fighting the Wrong Battle

The company is losing its antitrust case–but only because it is afraid to

by Edwin A. Locke

Apparently convinced of the hopelessness of victory in the antitrust suit against Microsoft, Bill Gates is now seeking an out-of-court settlement with the Justice Dept.

Gates is right to conclude that Microsoft is losing in court–but not for the reason he believes. Microsoft is losing, not because its case is weak, but because its moral confidence in its own position is lacking. The company has been afraid to defend the justice of its actions. Instead, throughout the trial, Microsoft has been appeasing the government by conceding all issues of principle and simultaneously denying obvious facts.

Microsoft witnesses have denied: that Microsoft slashed prices or gave away some products in order to beat its competitors; that it offered economic inducements to persuade other companies to promote its products rather than those of its rivals; and that is does have market dominance. But denying these obvious truths is worse than foolish–it plays right into the hands of the government, which has had a field day shooting holes in Microsoft’s case.

What should Microsoft be doing to defend itself properly? Here are five crucial points it should be making.

1. Capitalism entails free competition, which means the freedom to better your rivals–even to the point of putting them out of business. Barring physical force or fraud, there is no such thing as “unfair” competition; there is only competition that your rivals may not be good enough to match. There is no such thing as “predatory pricing”; there are only prices that your competitors may not be efficient enough to meet.

2. Market dominance is not monopoly. A true monopoly in the private sphere is impossible. Only government coercion can create a monopoly by granting exclusive control over a market–such as that given to the postal service or cable TV franchises–through prohibiting the entry of competitors. The only real monopoly is a coercive monopoly. In a free market, however, the only obstacle faced by new entrants is the need to match the productiveness of the successful companies. Without government-enforced privileges, a firm can dominate a market only by providing better products or lower prices than its rivals.

3. Markets, strategies and technology are never stagnant. No matter how well a given company does at a given point in time, there is no guarantee that it will retain its competitive advantage. Even the top firms can sustain their positions only if they continue to innovate and improve. History shows many examples of once-dominant companies–IBM, Xerox, Kodak, General Motors, U.S. Steel–that were severely hurt, sometimes to the point of near bankruptcy, by more creative competitors.

4. Economic power is fundamentally different from political power. Economic power consists of incentive and reward. It entails voluntary trade. Microsoft cannot compel anyone to deal with it–it can only state the terms under which it is willing to offer the products it has created. If Microsoft is willing to license its products to computer manufacturers on the condition that they not feature Netscape’s product, that is a trade. The manufacturer is free to refuse–and to accept the consequence of not being able to provide its customers with Microsoft software. Freedom of trade does not imply that every trader will always get his way; it means that he is free to decide whether or not to accept the terms of a trade. By contrast, political power–the power exercised by government–is the power of physical coercion. There is no trade and no choice involved. Political power simply forbids productive activities under the threat of fines or imprisonment.

5. Antitrust law is totally non-objective–and deliberately so. Former FTC Commissioner Lowell Mason called antitrust a system of “tyranny.” The central terms of antitrust law–”monopoly,” “unfair competition,” “predatory pricing”–have no clear definitions. In practice, therefore, antitrust law is whatever the government says it is–and its interpretations can constantly change. If your prices are too high, for example, you can be prosecuted as a monopolist; if they are too low you can be charged with unfair competition; if they match the prices of rivals, you can be accused of collusion.

For Microsoft to have a chance of success in its antitrust battle, it must candidly admit what it is actually doing–and defend the rightness of its actions. It needs to repudiate the fundamental misconceptions of antitrust law, and to assert its moral right to out-compete its rivals and reap the rewards of its success.

Edwin A. Locke, a professor of management
at the University of Maryland at College
Park, is a senior writer for the Ayn Rand
Institute 4640 Admiralty Way, Suite 406,
Marina del Rey, CA 90292. The Institute
promotes the philosophy of Ayn Rand,
author of Atlas Shrugged and The
Phone: 310.306-9232 ext 208,
Fax: 310.306-4925,
E-mail: [email protected],
Contact: Scott McConnell

Tom DeWeese
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Tom DeWeese is one of the nation’s leading advocates of individual liberty, free enterprise, private property rights, personal privacy, back-to-basics education and American sovereignty and independence.