Anti-Microsoft Conservatives: They Just Don’t Get It

“Antitrust enforcement should … be seen not as ‘regulation’ but as an alternative to regulation.” That apostasy appears in a letter sent to members of Congress by a group of Reagan-era antitrust officials. Today, the list of conservative defectors is swelling, according to a Progress and Freedom Foundation paper, “In Defense of Antitrust: Conservatives and the Microsoft Findings.” Indeed, applauds the author, “a growing number of conservatives are calling for what would seem the most drastic of remedies: a Microsoft breakup.”

Not so fast. Most conservatives, and virtually all libertarians, understand that Microsoft alone created its operating system and has a right to sell the system as it sees fit. Of course, antitrust law pays little attention to such niceties as property rights. Instead, the reigning shibboleths are economic efficiency and consumer welfare. Thus, the questions for many conservatives are whether Microsoft has a monopoly and whether it’s misusing its market power. Judge Jackson answered both questions affirmatively.

Joined by a few conservative fellow-travelers, Jackson warns that Microsoft’s market power makes it invulnerable to rival operating systems. “Linux’s open-source development model,” to cite one Jackson example, “shows no signs of [overcoming] Windows’ enormous reservoir of applications, [which] prevents non-Microsoft operating systems from competing.” Surprise! Investors know better. Back in August, shares of RedHat Inc., which provides Linux support, were initially offered at $14. Four months later, they are trading at $275. On December 9, VA Linux, which makes PCs that run Linux, first came to market at $30 per share. By close of business, the stock was $239 — the biggest one-day gain in history.

Not all conservatives missed those obvious lessons. One free-market economist who hasn’t lost his bearings is David S. Evans, of National Economic Research Associates. Writing in the current issue of Regulation, Evans criticizes Jackson’s findings for their artificiality, emerging as they did from an unreal world that could exist only within the four walls of a courtroom. Evans offers this representative handful of Jackson’s assertions, wholly at odds with observed facts:

  • Downloading software is too complex for the average user; yet millions of users have downloaded Netscape’s browser.
  • Microsoft’s bundling of its browser and operating system is bad for consumers; yet makers of nearly every other operating system have bundled browsers for more than five years.
  • Apple is not a viable Microsoft competitor because of the applications barrier to entry; yet 12,000 applications have been written for the Apple system.
  • Windows competes with obscure Intel-based operating systems (like, say, DR-DOS), but not with Java or Web-based servers.
  • Distribution of software through the Windows opening screen is essential; yet almost all software is distributed through other channels.
  • Microsoft’s applications barrier is so impregnable that neither Apple nor Linux can put a chink in it; yet Microsoft had to spend hundreds of millions to destroy Netscape and Sun, for fear that software developers would flock to their systems.

Another free market economist, George Priest, neatly dispatches the network effects argument advanced by many of the conservative backsliders. In a nutshell, advocates of network effects claim that consumers are locked in to a dominant technology (e.g., Windows) because of the need for compatibility. Priest, writing in the current Texas Review of Law & Politics, reminds us that the central goal of antitrust law is to benefit consumers. Ask yourself, he advises, whether consumers would be better off or worse off if their network were dismantled. Whenever a network bars entry, it’s because the efficiencies are so great that the network cannot be duplicated. So the barrier and the efficiency are two sides of the same coin.

To illustrate, suppose prices decline by $1 because of network efficiencies but increase $2 because the dominant provider exploits its competitive edge. No consumer would join that network, but the extraordinary profits would attract competitors. Conversely, assume that network efficiencies drive prices down by $2, but the dominant provider drives them up by $1. Competitors would find it unprofitable to enter, but consumers would surely benefit. In other words, states Priest, if the network helps consumers, the objective of the antitrust laws is satisfied. If the network harms consumers, the harm is self-correcting.

It’s not just conservatives who should be outraged when a company rises above the crowd only to have its head severed by bureaucrats and lawyers who are manifestly ignorant of how businesses function. But conservatives, presumably committed to private property and free markets, should be especially aggrieved. Before the harm is irreparable, before the Justice Department demonstrates that the law can truly be, as Dickens’ Mr. Bumble said, “a ass,” misguided conservatives need to reexamine their premises. This pernicious lawsuit should be reversed on appeal or abandoned by the next administration.

Robert Levy is a senior fellow in constitutional studies at the Cato Institute.