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Red Herring: A short history of monopolies

Jun 25, 2000, 20:09 (29 Talkback[s])
(Other stories by David R. Henderson)

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"Judge Thomas Penfield Jackson has ruled that Microsoft is a monopoly. Many see the verdict as unique because of its high-technology spin. But it is not that extraordinary. Antitrust law has been on a long and winding road since it was invented a century ago, and corporations in the past have found themselves in much the same kind of trouble that Microsoft is in today. The antitrust analogy that most resembles the Microsoft case is the 1945 Alcoa Aluminum prosecution, which forced the divestiture of Alcoa's Canadian holdings."

"Is Microsoft really a predatory monopoly that vanquishes rivals? There's no doubt that the economic mechanism known as "network effects" -- which amps up the value of a system as it acquires more users -- has intensified Microsoft's market power and bolstered its Herring 100 standing because of the ubiquity of its Windows operating system. But Microsoft is hardly invulnerable. It lagged badly in the "browser war" with Netscape in the early '90s. Microsoft was able to catch up only by recognizing its mistake and developing its own high-quality browser. Even two of Microsoft's most avid foes, Silicon Valley lawyer Gary Reback and Oracle CEO Larry Ellison, have admitted that it's possible to compete successfully with Microsoft. Industry leaders have been vanquished before. It happened when IBM was the tech world's big kahuna. Free-market competition, which the economist Joseph Schumpeter memorably defined as "creative destruction," reduced IBM's market power, with Intel and Microsoft as the destroying forces. Now competition via the Internet from Linux and other open-source operating systems is carving away Microsoft's power in the industry -- something that will continue."

"Microsoft will evolve or devolve. It should be free to do either without a shove from the government. Although the antitrust laws have been around since Congress passed the Sherman Act in 1890, economists have argued for decades that the laws should be cut back or even tossed onto the junk heap of failed public policy."

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