An Economic Analysis of Microsoft’s Conduct
11 Pages Posted: 9 Jul 2011
Date Written: 1999
The recent Findings of Fact in United States v. Microsoft Corp. paint a vivid picture of a monopolist abusing its dominant position. Even if one accepts the court’s description of Microsoft‘s conduct, however, the fundamental antitrust economics question posed by the case remains to be answered - what limits should be placed on a dominant firm’s ability to compete aggressively? Answering this question requires us to first understand the underlying economics of Microsoft’s conduct.
The purpose of this article is to apply economic analysis to Microsoft’s three major competitive decisions: to price its browser software - Internet Explorer (IE) - at zero; to integrate IE into the Windows operating system; and to sign de facto exclusive deals with a number of online service providers, most importantly AOL. It is assumed throughout the analysis that Microsoft possesses monopoly power in Intel-compatible PC operating system software, as was found by the court. Accepting this fact, and essentially all other facts describing Microsoft’s behavior presented in Judge Jackson’s Findings (but not all the economic implications he draws from these facts), we see that there is still a great deal of uncertainty regarding the economic principles one should employ when setting limits on permissible dominant firm competitive behavior.
JEL Classification: L41, K21
Suggested Citation: Suggested Citation