RAND: Is Microsoft a Monopoly?

Is Microsoft a Monopoly?

© 2006 David Williams - [email protected] 2/64

The Short Answer


The Short Answer: Is No


The Long Answer:


The Long Answer: Is Sort of

Civil Action No. 98-1232 (TPJ), April 03, 2000 Guilty of Violating The Sherman Act §1 and §2


The Long Answer: “It’s the Browser”

Civil Action No. 98-1233 (TPJ) Conclusions of Law The United States, nineteen individual states, and the District of Columbia ("the plaintiffs") bring these consolidated civil enforcement actions against defendant Microsoft Corporation ("Microsoft") under the Sherman Antitrust Act, 15 U.S.C. §§ 1 and 2. The plaintiffs charge, in essence, that Microsoft has waged an unlawful campaign in defense of its monopoly position in the market for operating systems designed to run on Intel-compatible personal computers ("PCs"). Specifically, the plaintiffs contend that Microsoft violated §2 of the Sherman Act by engaging in a series of exclusionary, anticompetitive, and predatory acts to maintain its monopoly power. They also assert that Microsoft attempted, albeit unsuccessfully to date, to monopolize the Web browser market, likewise in violation of §2. Finally, they contend that certain steps taken by Microsoft as part of its campaign to protect its monopoly power, namely tying its browser to its operating system and entering into exclusive dealing arrangements, violated § 1 of the Act. Upon consideration of the Court's Findings of Fact ("Findings"), filed herein on November 5, 1999, as amended on December 21, 1999, the proposed conclusions of law submitted by the parties, the briefs of amici curiae, and the argument of counsel thereon, the Court concludes that Microsoft maintained its monopoly power by anticompetitive means and attempted to monopolize the Web browser market, both in violation of § 2. Microsoft also violated § 1 of the Sherman Act by unlawfully tying its Web browser to its operating system. The facts found do not support the conclusion, however, that the effect of Microsoft's marketing arrangements with other companies constituted unlawful exclusive dealing under criteria established by leading decisions under § 1.


Eliot Spitzer? Attorney General, State of New York

Civil Action No. 98-1233 (CKK) Competitive Impact Statement, 11/15/2001 Microsoft has monopoly power in the market for Intel-compatible personal computer operating systems and undertook an extensive campaign of exclusionary acts to maintain its operating system monopoly. The relevant market for evaluating Microsoft's monopoly power is the licensing of all Intel-compatible personal computer operating systems worldwide. Intel-compatible personal computers are designed to function with Intel's 80x86 and successor families of microprocessors (or compatible microprocessors). Operating systems designed for Intel-compatible personal computers do not run on other personal computers, and operating systems designed for other personal computers do not run on Intel-compatible personal computers. Moreover, consumers are very reluctant to substitute away from Intel-compatible personal computers for any reason including an increase in operating system prices) because to do so would entail incurring substantial costs and would not result in a satisfactory substitute. Thus, a monopolist of operating


How Can That Be?


What’s the Theory


The Theory Is:


Is There a Threat to Market Power?



What is the Market?



What is the Market?

What are the Products?

What is the Relevant Geographic Region?



What is the Market?


Who are the Firms?

Who are the Uncommitted Entrants?




What is the Market?


Who are the Firms?



Use the SSNIP Model



What is the Market?


Who are the Firms?



Use the Herfindahl Index

Use the SSNIP Model



What is the Market?


Who are the Firms?



Use the Herfindahl Index

Use the SSNIP Model

If (HHI < 0.1) Then Do Nothing

If (0.1 < HHI < .18) And

If (0.18 < HHI) And (Future HHI > HHI + 0.05) Then Negotiate

(Future HHI > HHI + 0.1) Then Negotiate


DOJ Methods

The Herfindahl-Hirschman Index

( ) ( )2

2

j j kj M j M k M

HHI M S R R∈ ∈ ∈

⎛ ⎞= = ⎜ ⎟

⎝ ⎠∑ ∑ ∑


DOJ Methods

( )( )

p,p,ji

ijj i

px ydp x y

ε∂

=

The Cross Price Elasticity of Demand


DOJ Methods: Their Primary Model

SSNIP

The Small but Significant Non-Transitory Increase in Price


DOJ Methods in Total

( )( )

p,p,ji

ijj i

px ydp x y

ε∂

=

( ) ( )2

2

j j kj M j M k M


⎛ ⎞= = ⎜ ⎟

⎝ ⎠∑ ∑ ∑

SSNIP


Definition and Properties of the Herfindahl-Hirschman Index Notation and Variables

( )

( ) ( ]2

2

Some MarketMarket Share of Firm

# Number ofFirms in the Market

( ) 0,1

j

j j kj M j M k M

MS j

M


=

=

=

⎛ ⎞= = ∈⎜ ⎟

⎝ ⎠∑ ∑ ∑


Definition and Properties of the Herfindahl-Hirschman Index As a measure of equality:

Suppose every firm had equal market share so that:

Then:

( ) ( )2

2( ) 1 #j M j M k M

HHI M S R R M∈ ∈ ∈

⎛ ⎞= = =⎜ ⎟

⎝ ⎠∑ ∑ ∑

( ) ( )11 2

21 ( ) #j M j M k M

HHI M S R R M−−

∈ ∈ ∈

⎛ ⎞⎛ ⎞ ⎛ ⎞= = =⎜ ⎟⎜ ⎟ ⎜ ⎟⎜ ⎟⎝ ⎠⎝ ⎠ ⎝ ⎠∑ ∑ ∑


Definition and Properties of the Herfindahl-Hirschman Index So that as a measure of equality, the reciprocal of the HHI is often referred to as the fair-market-equivalent-number of firms.

( ) ( )" "1 #EgalitarianHHI M M=


Example HHI from US vs. MCSF

www.usdoj.gov\atr\cases\ms_exhibits.html




{ }

( ) ( ) ( ) ( ) ( )2 2 2 2 2

In 2001:Microsoft, IBM OS/2, UNIX, Other Intel

( ) 0.96 0.02 0.001 0.019 0.92j M

M

HHI M S∈

=

= = + + + =∑




{ }

( ) ( ) ( ) ( ) ( )2 2 2 2 2

In 2001:Microsoft, IBM OS/2, UNIX, Other Intel

( ) 0.96 0.02 0.001 0.019 0.92j M

M

HHI M S∈

=

= = + + + =∑

That’s very high!


This leaves Open Questions

O’reilly Press: Anatomy of a Linux System


Marshall Said it Best That which is rightly regarded as interest on 'free' or 'floating‘ capital, or on net investments of capital, is more properly treated as a sort of rent - a quasi-rent it is called below – on old investments of capital. And there is no sharp line of division between floating capital and that which has been sunk for a special branch of production, nor between new and old investments of capital; each group shades into the other gradually, and thus even the rent of land is seen, not as a thing by itself, but as the leading species of a large genus, though indeed it has peculiarities of its own which are vital from the point of view of theory as well as practice.


Marshall Said it Best That which is rightly regarded as interest on 'free' or 'floating‘ capital, or on net investments of capital, is more properly treated as a sort of rent - a quasi-rent it is called below – on old investments of capital. And there is no sharp line of division between floating capital and that which has been sunk for a special branch of production, nor between new and old investments of capital; each group shades into the other gradually, and thus even the rent of land is seen, not as a thing by itself, but as the leading species of a large genus, though indeed it has peculiarities of its own which are vital from the point of view of theory as well as practice.

Yes, the guy behind the Marshallian Demand Curve


Fundamental Transformations Relationship Specific Assets Investments into a Specific Market Transaction

Types

There are at least 4 types:

Site Specificity – Geographic proximity to economize on transportation costs, inventory costs and

process costs Physical Asset Specificity – Custom tailored engineering specifications

Dedicated Assets – Plant and equipment Human Asset Specificity – Valuable skills within a transaction; know how, experience, knowledge of routine and

culture


Fundamental Transformations Relationship Specific Assets Investments into a Specific Market Transaction Human Asset Specificity – Valuable skills within a transaction; know how, experience, knowledge of routine and

culture


Fundamental Transformations Relationship Specific Assets Investments into a Specific Market Transaction Human Asset Specificity – Valuable skills within a transaction; know how, experience, knowledge of routine and

culture

“Moreover, consumers are very reluctant to substitute away from Intel-compatible personal computers for any reason”

- Elliot Spitzer


Create Quasi-Rents and Holdups Relationship Specific Investments Rent Quasi-Rent

( )2I Q p c− ⋅ −

( )* *Q p c Iπ = ⋅ − −

( )*2Q p p⋅ −



( )2I Q p c− ⋅ −

( )* *Q p c Iπ = ⋅ − −

( )*2Q p p⋅ −

Now your transaction partner can extract the difference



( )2I Q p c− ⋅ −

( )* *Q p c Iπ = ⋅ − −

( )*2Q p p⋅ −

Now your transaction partner can extract the difference In a hold-up


Holdup

Q

*p

2p


The Holdup is in the Viscosity See Dr. Alan Blackwell’s: Human Computer Interaction Notes

University of Cambridge Computer Laboratory http://www.cl.cam.ac.uk/Teaching/2000/AGraphHCI/HCI/hcinotes.html


Hello... Holdup... Mathematica While[True, Print["Hello, world!"]]


Hello... Holdup... Perl print "Hello, World!\n" while (1);


Hello... Holdup... SAS // EXEC SAS

//SAS.SYSIN DD *

DATA NPUT;

INPUT OUT $CHAR12.;

CARDS;

HELLO WORLD!

PROC PRINT;

/*


Hello... Holdup... S & S-PLUS # Hello world

# This is the Endless loop version which prints to standard output.

while (TRUE) { cat("Hello world!\n") }


Hello... Holdup... Visual Basic Private Sub FOrm_Load()

Static I

I = 1

for I = 1 to 10

msgbox "Hello World"

Next I

end sub


Hello... Holdup... Microsoft SQL 6.0 again:

select 'Hello, World!'

goto again


Hello... Holdup... Dos batch file @echo off

:top

echo "Hello, World!"

goto top


Hello... Holdup...

OS/2 #define INCL_DOSFILEMGR #include <os2.h> #define HF_STDOUT /* Standard output handle */ static UCHAR szHelloWorld[] = "Hello Warped World!"; void main() { ULONG cbWritten; while (1) DosWrite(HF_STDOUT, /* Standard output handle */ szHelloWorld, /* buffer to write */ sizeof(szHelloWorld), /* length of buffer */ &cbWritten); /* count of bytes written */ }


Hello... Holdup...

Windows 3.1 API #include

int PASCAL WinMain(HINSTANCE, HINSTANCE, LPSTR, int)

{

return MessageBox(NULL, "Hello World", "", MB_OK);

}


In the End: Some Fair Play


In the End: An Icon at Last


In the End: An Icon at Last MODIFIED FINAL JUDGMENT

(Originally Entered November 12, 2002 ; Modified _September 7, 2006)



(Originally Entered November 12, 2002 ; Modified _September 7, 2006) AND WHEREAS, this Final Judgment does not constitute any admission by any party regarding any issue of fact or law;



(Originally Entered November 12, 2002 ; Modified _September 7, 2006) AND WHEREAS, this Final Judgment does not constitute any admission by any party regarding any issue of fact or law; III.H.1 Allow end users... an Add/Remove icon



(Originally Entered November 12, 2002 ; Modified _September 7, 2006) AND WHEREAS, this Final Judgment does not constitute any admission by any party regarding any issue of fact or law; III.H.1 Allow end users... an Add/Remove icon III.H.2 launch Middleware Product in a separate Top-Level Window and display either

(i) all of the user interface elements or (ii) the Trademark of the Middleware Product





III.H.3. Ensure that a Windows Operating System Product does not automatically alter an

OEM's configuration of icons


What, Like the Shell32.dll Icons?


Questions?

RAND: Is Microsoft a Monopoly?

Technology

Transcript of RAND: Is Microsoft a Monopoly?