Pursuing a Remedy in Microsoft: The Declining Need for Centralized Coordination in a Networked World

Abstract

In this paper, I make a number of points about the Microsoft case itself and the next steps that should take place. In particular, I argue that:

- No Liability for Tying. Microsoft should not be found liable under the Sherman Act for tying Internet Explorer to Windows. In the pre-networked world, Windows played the central role in coordinating the sharing of software. Incorporating a browser would have been perfectly consistent with that role.

- The Drop in the Cost of Software Coordination. The rise of the network changes how software should be distributed and changes the role of Windows in software coordination. There is less of a need for mandatory incorporation of software into Windows, as decentralized distribution and coordination is now possible.

- Distorted Distribution Channels. As found by the D.C. Circuit, Microsoft engaged in impermissible monopoly maintenance. In so doing, Microsoft distorted the channels for software distribution and added software to Windows for the purpose of raising the cost of distribution of rival software.

- Distribution Remedies. A proportionate Microsoft remedy should address that distributional distortion and seek to prevent future distortions. These remedies should:

- foster desktop flexibility for distributional intermediaries, so that there are no mandatory icons on the Windows desktop or spots reserved in the Start Menu or its equivalent;

- require Microsoft to engage in mandatory versioning, so that it issues Windows versions with and without any new middleware that it adds to Windows;

- impose a moratorium period of six months to 2 years during which Microsoft would be able to distribute through distributional intermediaries only the baseline Windows without new middleware, while permitting distribution of the full version of Windows via CD or Microsoft's website;

- after the moratorium period, rely on competition among software producers and others for distributional intermediary shelf space to control software distribution abuses; and

- sunset, perhaps after a period of three years.

- Equilibria and Restoring Competition in Distorted Markets. The direct-distribution-only remedy will likely impose interim costs on consumers. We need to assess those costs and understand whether they need to be borne. That turns in part on whether preventing further anti-competitive acts will suffice to create the competitive level that would have existed absent Microsoft's acts, or whether such competition can be restored only through a more direct measure such as the suggested direct-distribution-only remedy.

Keywords: Microsoft, antitrust

JEL Classification: K2, L4