Microsoft Antitrust Issue

Microsoft Antitrust Issue English 11-3 Research Microsoft Antitrust Issue Introduction Once upon a time there were two boys named Ed and Ned. This story is a fairy tale, but one in which most people already know all of the facts.

Ed was an eight-year-old who lived in a small town with his parents not far from the state capital. Ed’s father was a smart lawyer. He knew most people in the town were poor, so he built a gym set that all the kids in the town could play on.It was such a good gym set and both it and Ed became so popular that he decided to start charging each person twenty-five cents a day to play on it. Ed became rich and even started making more money than his father. Soon, a new boy named Ned moved to town. He was six years old. Ned’s dad could only mow lawns and do odd jobs around town.

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Ned liked the gym set and one day had an idea.He figured that the kids playing on the gym set would get thirsty, so each day he went to the grocery store and bought a six pack of Fizz Cola and set up a stand in front of his house. Most kids bought a glass of Fizz Cola each day they played on the gym set.

Now, Ned was making more money than Ed and both their dads. Ed couldn’t stand another kid coming into town and making more money than him. Ed and his dad came up with a plan to triple the cost to play on the gym set to seventy-five cents and add a glass of Bubble Cola for each kid each day. Now, every person has to pay more but they get a refreshment too.Ed and his dad wondered if the kids would go for the deal.

They thought seventy-five cents might be too much to pay to play each day. So, they said they were raising prices, but the glass of Bubble Cola is free. Now, no one wants to buy Fizz Cola from Ned, because they have to buy the glass of Bubble Cola if they want to play on the gym set. Ned tries to convince some kids that Fizz Cola is better than Bubble Cola and some kids even prefer Fizz Cola over Bubble Cola.Since they have to buy a glass of Bubble Cola, Ned can no longer sell his Fizz Cola. He may be forced to move away with his family, since he was the only source of income and now his dad has become ill. All the kids in the neighborhood go to the town meeting, that week, including Ed and Ned.

Some kids say they don’t want to have to drink Fizz Cola every day, some say they can’t drink carbonated drinks, and some say they don’t have the extra money to spend every day. So the town council must come up with some solutions. The town council comes up with three possible solutions: 1.They could make no changes in the way Ed is handling his business, thus forcing Ned to move out with his parents. 2. The second choice is to split Ed into two separate companies, thus causing him to lower the price back to twenty-five cents. 3. The third choice is to double the price and force Ed to offer both Fizz Cola and Bubble Cola.

Both Ed and Ned would split the profits evenly (Mettler, 1-3). Microsoft is engaging in unfair business practices and should split off their network company; should offer both Microsoft Internet Explorer and Netscape on Windows; or a consent decree should be issued to require Microsoft to stop making exclusionary contracts with computer makers and Internet Service Providers (“ISPs”). Microsoft is being sued by the Department of Justice for giving away a copy of Internet Explorer with every new Windows 95 sale, violating a consent decree the two parties signed in 1995. They are also accused of being in violation of the Sherman Act, which prohibits a firm from participating in exclusionary or predatory acts. Back in 1994 the Justice Department announced that Microsoft agreed to end practices that were illegal.These practices, the government said, choked off competition and inflated prices in the personal computer software industry. Elizabeth Corcoran writes that “many computer companies were forced to buy computer software even if they never used it, as in cases where a company went out of business, and the new software had made the old obsolete (Corcoran, 2).

Today, the government is investigating whether Microsoft is engaging in unfair business practices. The Department of Justice says Microsoft is engaging in unfair business practices by not letting companies delete Microsoft’s Internet Explorer from Windows 95. The manufacturers do not get a license for Windows 95 unless they accept the browser.

The government says this is a monopolistic practice. A monopoly is an exclusive possession of the trade in some commodity .. aimed to drive competitors out of business or keep them from entering a market. Where monopolies exist unrestricted competition is lost. So, if one seller controls a market, consumers are left with little choice but to buy that product, and that company has little incentive to improve the product or keep prices reasonable (qtd.

Microsoft Antitrust Issues, 505). Specifically, as Charles Rule has stated, the Justice Department must prove not only that Microsoft has monopoly power but also that Microsoft has acquired or maintained that power through exclusionary or predatory acts.The law protects the marketplace from private conduct that interferes with the competitive process.

The antitrust laws protect competition not competitors. To have a violation of section two of the Sherman Act the court must prove that the defendant has a monopoly power. Rule concluded by saying that the Supreme Court has defined such power as the power to control market prices or exclude competition”(Rule, 1 – 2). Solution 1 As illustrated in the story above a solution to the problem is to make changes in the way Microsoft is handling its business.The computer market is limited in systems installed on computers, because Microsoft has “locked in” manufacturers.

It is virtually impossible for anyone to challenge Microsoft’s dominance on the desktop. In 1945 Judge Learned Hand agreed with the government that the Aluminum Co. of America had an unlawful monopoly and should be broken up. Aluminum Co.of America, the Judge wrote, was wrong to “always anticipate increases in the supply demand for (aluminum) 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” (Jacoby, A6).

As illustrated by the Aluminum Co. of America decision the Justice Department should punish Microsoft by splitting it into a Microsoft Explorer Company and a Software Company. The Microsoft Explorer Company would mainly make the web browser.Microsoft would be forced to take the browser out of Windows 95 because it would no longer be able to put it on the Windows system if they weren’t one company anymore. The Software Company would be in charge of making the Windows systems and games; anything but the web browser. Again, Mr. Rule says, the theory behind this split is that the “market share” of a software product is much less significant than the typical market share possessed by a manufacturer of a producer of physical goods. Once written, a piece of software can be copied an i …