Policy Analysis No. 296

Microsoft and the Browser Wars: Fit to Be Tied

Executive Summary

Do our antitrust laws still make sense — if they ever did? That is the question we should be debating while the courts decide whether Microsoft’s browser is integrated with its operating system. At the very least, antitrust law should be modified so that “tying arrangements” are no longer prohibited.

Today’s software industry, where innovation proceeds at an astonishing pace, stands in stark contrast to the sterile marketplace that would emerge if government were to butcher the incentives that lead to new and improved products.

In real markets, the impetus for growth comes from vigorous exertions by producers struggling to establish market power. That power is invariably short-lived — unless government-created barriers, arising out of special-interest legislation or misguided regulations, prevent competitors from entering the market. The obvious remedy is for government to stop creating those barriers.

Despite intense competition in the information technology market, the Department of Justice (DOJ) persists in its crusade to force Microsoft to offer two versions of its Windows operating system — one with its internet browser, one without — even if both are identically priced. That option, according to DOJ, would settle the current dispute.

Yet if Microsoft can dispel DOJ’s concerns by offering an inferior product, at no reduction in price, which consumers will likely reject, then the government’s position is quite simply unfathomable. In the end, consumers and taxpayers will foot the bill for this legal fiasco. More important, government micromanagement will chill innovation.

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