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The Right Remedy

Antitrust law respects economic logic by establishing two goals for remedy, restoration of competition harmed by the violations and prevention of further violations. Microsoft has a pattern of violations, interfering with the commercialization of competitive technologies brought by the Internet in the 1990s and committed to repeating the pattern by preventing valuable innovation in the new century. Microsoft is strategically quite predictable; it will always violate the law if - as has been so often the case since the mid 1990s - it cannot win a technology race on the merits. On the other hand, Microsoft is tactically quite resourceful; its violations of the antitrust law are wide-ranging and varied. Such a widespread, lawless and harmful ongoing pattern of lawbreaking merits a remedy that accomplishes both goals. Standard antitrust analysis would lead to the obvious, traditional remedy: ending the Windows monopoly, either by breaking up the company into multiple sellers of Windows or by licensing Windows technology widely. Both goals for remedy can be accomplished in this case without that traditional step. First, vertical disintegration of the company into an applications and an operating system company restores competitive conditions very like those destroyed by the violations. Absent the violations, Microsoft would have lost the browser war, and other firms would have commercialized many useful technologies now controlled by Microsoft. A more vertically disintegrated market structure, like having an independent browser company in the late 1990s or an applications company now, increases competition in many markets. It was exactly this route to an increase in competition that Microsoft avoided by its violations. Second, ending Microsoft's unique position in the industry offers innovative new technologies the choice of two mass market distribution partners, either AppsCo or OpsCo.

Author(s)
Timothy Bresnahan
Publication Date
August, 2001