Microsoft Antitrust Case: IE Bundling and Market Power

Introduction: Microsoft's Market Dominance and the Antitrust Case

Microsoft Windows is such a ubiquitous piece of software that it is virtually impossible to imagine using a computer without it. Even though many people dislike the system, functioning in contemporary life requires most students and workers to be familiar with the product. This lack of de facto choice made Microsoft the subject of numerous antitrust lawsuits, the longest and most extensive of which involved its built-in Internet browser, Internet Explorer (IE). The government alleged that by bundling IE into Microsoft Windows, the company subjected other browsers to unfair competitive practices and limited consumer choice.

During the lawsuit, Microsoft contended "that it, and it alone, should be the arbiter of what new software is bundled into its Windows operating system, the equivalent of the central nervous system on 90% of personal computers. Besides, Microsoft contends, its Internet browser is not a separate product, as the Government asserts, but an 'integrated feature' of Windows" (Lohr, 1998, Ruling on Microsoft).

The Government's Case: Sherman Act and Bundling Allegations

The government's suit applied the Sherman Antitrust Act, framing the case as one of "protecting consumer choice and economic competition from the predatory assault of a modern monopolist" (Lohr, 1998, U.S. v. Microsoft). In defense of its contention that Microsoft unfairly bundled services to make it difficult for users to choose other browsers, the government stated: "Microsoft's operating system, the central nervous system of a computer, has changed dramatically, adding dozens of new features over the years to make computers easier to use. All Windows' features, from point-and-click icons to software for sending faxes from a personal computer, were once sold as separate products" (Lohr, 1998, U.S. v. Microsoft).

The government argued that this bundling reduced competitive practices in the browser market. Microsoft countered that designing its operating system as it saw fit was its right as a company, and that integration of features was a natural part of software development rather than an anticompetitive strategy.

The 2001 Settlement and Its Outcomes

In the eventual settlement between the government and Microsoft, Microsoft was required to share technical information with third parties to enable them to more easily create browsers that would be just as compatible with Windows as Internet Explorer. "The DOJ emphasized the goal of the settlement was to ensure a competitive environment for so-called middleware applications, such as Web browsers and media players, that could help erode the Windows monopoly" (Romano, 2007).

In terms of the settlement's efficacy, the Department of Justice pointed in 2007 to the rise of browsers such as Mozilla's Firefox, Opera, and Apple's Safari, which were by then competing with Microsoft and which many users considered superior in terms of speed and security (Romano, 2007). Critics, however, alleged that the settlement still did little to erode Microsoft's monopoly in any meaningful fashion.

Conclusion: Regulation and the Limits of Competitive Markets

Fundamentally, Microsoft is not a beneficial, controlled monopoly, such as the highly regulated government monopolies over natural gas, in which economies of scale and the scarcity of resources make monopoly arrangements advantageous for consumers. Pre-Microsoft and pre-Apple, the computer market was highly diverse and innovative. Because systems need to be compatible, however, major companies like Microsoft now dominate the market, and despite all of the problems Windows users may experience, the need to be able to operate Windows ensures that Microsoft retains a captive audience of consumers.