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Wall Street Journal Op-ed #1: “Microsoft is a Competitor, Not a ‘Predator'”

In my on-going attempt to catalog here at Cafe Hayek as many as possible of my past writings, here’s my first op-ed in the Wall Street Journal.  It was published on October 7, 1996.  It appears in full below the fold (with my misspelling of Marc Andreessen’s first name corrected; Mr. Andreessen’s father sent me a scolding letter in response to my misspelling of his son’s name.):

Netscape co-founder Marc Andreessen was once an entrepreneurial hero. No longer. Rather than rely upon the innovative genius responsible for Netscape’s initial success, Mr. Andreessen and his colleagues now panhandle for government protection from newly intensified competition posed by Microsoft. Regrettably, the Justice Department is acting on these complaints by launching yet another antitrust investigation of the Seattle software giant.

Netscape is currently the world’s leading provider of “browser” software for navigating the Internet. Of all Internet browsing today, 80% is done with Netscape’s Navigator software. But when one company pioneers a successful business, competition inevitably intensifies. Consumers benefit from the resulting cuts in prices and improvements in quality.

Among those now competing more intensely with Netscape is Microsoft, which on Aug. 12 introduced the latest version of its Web-browser software, Internet Explorer 3.0. “Even Bill Gates’s worst enemy would have to concede that the Microsoft browser is superb,” writes the Boston Globe.

An entrepreneurial Netscape should welcome Microsoft’s aggressive competition as a challenge to further improve its products. Instead, Netscape (with a market share in Web-browsing software 16 times larger than Microsoft’s) responds to this competition by asking antitrust authorities to douse Microsoft’s competitive fires.

Mr. Andreessen accuses Mr. Gates of “predatory” behavior — trying to harm Netscape today so that Microsoft supposedly wins a monopoly tomorrow. Netscape claims that Microsoft imperils competition by selling its Internet Explorer at intolerably low prices. In addition, Netscape complains of Microsoft’s contracts with Internet service providers such as AT&T’s new WorldNet. Under these contracts, Microsoft provides software making it easier for consumers to sign up with a service provider; in return, the service provider pays Microsoft a small fee for each customer sign-up and agrees to distribute Internet Explorer as its preferred browsing software.

Microsoft’s behavior is not monopolistic; it’s competitive. Competitors are supposed to lower prices and to provide innovative ways of easing consumers’ access to products. And nothing is amiss when a firm providing valuable tools to Internet service providers charges for these services. Because a monopoly in Web-browsing software would increase computer users’ costs of surfing the Internet, content providers have incentives to avoid contractual dealings that promote such a monopoly. Clearly, service providers deal as they do with Microsoft only because Microsoft offers competitive terms. Companies dissatisfied with Microsoft can easily turn to Netscape and other software firms for more attractive deals.

Microsoft’s alleged sins are like all “predatory” behavior: They are indistinguishable from dynamic competition. Every price cut, quality improvement, and innovation in distribution challenges firms to compete more energetically for consumers’ dollars. But if antitrust law looks suspiciously upon lower prices and improved quality as evidence of monopoly behavior, it is tempting for firms that lose their competitive edge to seek in the courtroom what they can’t win in the free marketplace.

The Justice Department’s harassment of Microsoft is true to antitrust’s long history of abuse. Scant evidence exists showing that firms ever monopolize through “predatory” behavior. Noted economist William Baumol reports that there is “general consensus among informed observers that genuine cases of predation are very rare.” Research shows that even J.D. Rockefeller’s Standard Oil Company — thought to be the quintessential predatory pricer — never engaged in the practice. Economist Edward Snyder and law Prof. Thomas Kauper found that a large majority of cases alleging predation are legalistic charades meant to stymie competition by preventing consumers from taking advantage of good deals offered by more aggressive firms.

The Justice Department should be more sensitive to the potential problems that charges of predation can cause. In January 1969 Lyndon Johnson’s Justice Department accused IBM of a variety of predatory practices. Thirteen years and millions of dollars later the suit was dropped, but not before draining from Big Blue much of the competitive spirit that it would otherwise have brought to the microcomputer age of the 1980s.

To stop this odious abuse of antitrust laws, Congress should eliminate suits alleging predatory behavior — or at least prevent rivals from resorting to this anticompetitive tactic. If that happens, no longer will entrepreneurial firms fear legal retribution for the offense of aggressively pleasing consumers. And no longer will less entrepreneurial firms be able to ignore the wishes of consumers by resorting to legal chicanery. The Marc Andreessens of the world then would be required to seek their fortunes from consumers in markets rather than from bureaucrats and judges in courtrooms.