Re: FC: Responses to Why Microsoft hasn't violated Sherman Act

Joseph M. Reagle Jr. (
Wed, 13 May 1998 12:37:12 -0400

In reading the anti-trust thread, I'm struck by the presumption that many of
the people feel that the MS issue is particularly unique one and that some
of the solutions/proposals put out are novel. So below are a couple of
quick refs to past cases. My real concern is what exactly is the DoJ trying
to accomplish? I would argue that the question of MS as a monopoly to be
nearly moot, if it is one, it is one because of sharp management and
increasing returns (things that justifies monopoly power from the point of
economic efficiency); if it isn't, why are we bothering? What is the policy
the government is trying to achieve? A market segmentation akin to what Vale
agreed to for AT&T that made them abandon data services (kind of funny that
50 years later, everything moves back to data)? RoR regulation (I hope not,
there goes the stock market), price-cap regulation, an enshrined monopolist
that lords over a "captured" regulatory institution?

Anti-trust policy instruments are often as accurate as a shot-gun at long
range, and that's presuming one knows the policy goal one is aiming at. I'm
not advocating any particular action or strategy, just commenting that the
policy focus and real analysis are lacking so far.

At 10:02 PM 5/10/98 -0700, Declan McCullagh wrote:
>Date: Fri, 8 May 1998 16:17:59 -0700
>From: Steve Schear <>
>My suggestion, the replacement of the Sherman Act by an objective measure
>of market presence in determining when to pull the plug on these gov't
>franchises. Using Bill Gate's own 'friction-free' economic model, I would
>place the number at 40% market share.

Point of information, such measures are the mainstay of regulatory
economics. Market concentration ratios, and recently the Herfindahl Index
[1] are used to determine the level of concentration in a given market.
However, the question of what market one is speaking of becomes the
contentious issue. There's a HBS case study related to the regulation of
ADM[1] in the sweetner markets, I found the arguments regarding which market
they were speaking of, sucrose or fructose, to be quite comedic. What is the
"marketplace" for MS in the context of digital convergence?


>Date: Fri, 8 May 1998 11:50:28 -0700
>From: Doc Holliday <>
>Microsoft has laid the rails for the progress of information technology and
>no one else's trains, besides Bill Gates', will run on those tracks. I
>don't know about you, gentlemen, but I do not feel safe trusting one
>company, whatever their business practices, with the future of the most
>important industry in the world.

The folks who've been speaking for years of telco/IT as related to rail
roads have finally published their book, which might be relevant to the
topic. (Haven't yet read it myself.)

The Gordian Knot : Political Gridlock on the Information Highway
by W. Russell Neuman, Lee McKnight, Richard Jay Solomon
As social, political, and business forces struggle to come to terms with new
communications technology, innovation doesn't progress--it freezes up. This
sociopolitical and economic gridlock is what Neuman, McKnight, and Solomon
are calling the "Gordian Knot." The authors examine how similar gridlock has
happened in the past with other new technologies; for example, during the
development of the railroad, among the telephone companies, and, more
recently, with the international and inter-industrial wrestling matches over
High Definition Television. The introduction of each of these technologies
has involved a clash of economic interests among industrial giants or
would-be giants--all of which have struggled to control access, standards,
and proprietary technology in the emerging industry.

>From: Jeff Faria <>
>Subject: Re: FC: Why Microsoft has not violated the Sherman Act
>great story, and I totally agree. The suit against Miscrosoft is a clueless
>government going against a ruthless, but basically honest (as big
>businesses go) company.

There are cases in which anti-trust was applied to companies that were not
particularly "predatory", just really sharp:


It is possible that antitrust laws can be used to attack behavior which is
not only not economically inefficient, but which may be desirable. For
example, suppose a company is extremely well-managed, excelling at producing
quality products at low prices. Such a company will be profitable and will
grow to dominate its industry. Its dominance and large profits would appear
to indicate that it was a monopoly and could trigger antitrust action. In
fact, there are actual cases similar to this. The Alcoa case of 1945 seems
to be one.

Alcoa was found innocent of monopolistic practices by the district court,
but an appeals court reversed this decision and found it guilty. Justice
Learned Hand explained in the decision:

"It was not inevitable that it [Alcoa] should always anticipate increases in
the demand for ingot and be prepared to supply them. Nothing compelled it to
keep doubling and redoubling its capacity before others entered the field.
It insists that it never excluded competitors; but we can think of no more
effective exclusion than progressively to embrace each new opportunity as it
opened, and to face every newcomer with new capacity already geared into a
great organization, having the advantage of experience, trade connections
and the elite of personnel."

Hand's decision makes clear that Alcoa maintained its position with
managerial excellence. There was no evidence that it restricted output to
keep prices high, the sins of monopoly which lead to economic inefficiency.
On the contrary, it kept prices low and expanded output. Hand's reasoning,
subsequently reaffirmed in other cases, is difficult to justify economically.

Joseph Reagle E0 D5 B2 05 B6 12 DA 65 BE 4D E3 C1 6A 66 25 4E independent research account