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Is Microsoft a Monopoly?
© 2006 David Williams - [email protected] 2/64
The Short Answer
© 2006 David Williams - [email protected] 3/64
The Short Answer: Is No
© 2006 David Williams - [email protected] 4/64
The Long Answer:
© 2006 David Williams - [email protected] 5/64
The Long Answer: Is Sort of
Civil Action No. 98-1232 (TPJ), April 03, 2000 Guilty of Violating The Sherman Act §1 and §2
© 2006 David Williams - [email protected] 6/64
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.
© 2006 David Williams - [email protected] 7/64
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
© 2006 David Williams - [email protected] 8/64
How Can That Be?
© 2006 David Williams - [email protected] 9/64
© 2006 David Williams - [email protected] 10/64
© 2006 David Williams - [email protected] 11/64
What’s the Theory
© 2006 David Williams - [email protected] 12/64
The Theory Is:
© 2006 David Williams - [email protected] 13/64
Is There a Threat to Market Power?
© 2006 David Williams - [email protected] 14/64
Is There a Threat to Market Power?
What is the Market?
© 2006 David Williams - [email protected] 15/64
Is There a Threat to Market Power?
What is the Market?
What are the Products?
What is the Relevant Geographic Region?
© 2006 David Williams - [email protected] 16/64
Is There a Threat to Market Power?
What is the Market?
What are the Products?
Who are the Firms?
Who are the Uncommitted Entrants?
What is the Relevant Geographic Region?
© 2006 David Williams - [email protected] 17/64
Is There a Threat to Market Power?
What is the Market?
What are the Products?
Who are the Firms?
Who are the Uncommitted Entrants?
What is the Relevant Geographic Region?
Use the SSNIP Model
© 2006 David Williams - [email protected] 18/64
Is There a Threat to Market Power?
What is the Market?
What are the Products?
Who are the Firms?
Who are the Uncommitted Entrants?
What is the Relevant Geographic Region?
Use the Herfindahl Index
Use the SSNIP Model
© 2006 David Williams - [email protected] 19/64
Is There a Threat to Market Power?
What is the Market?
What are the Products?
Who are the Firms?
Who are the Uncommitted Entrants?
What is the Relevant Geographic Region?
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
© 2006 David Williams - [email protected] 20/64
DOJ Methods
The Herfindahl-Hirschman Index
( ) ( )2
2
j j kj M j M k M
HHI M S R R∈ ∈ ∈
⎛ ⎞= = ⎜ ⎟
⎝ ⎠∑ ∑ ∑
© 2006 David Williams - [email protected] 21/64
DOJ Methods
( )( )
p,p,ji
ijj i
px ydp x y
ε∂
=
The Cross Price Elasticity of Demand
© 2006 David Williams - [email protected] 22/64
DOJ Methods: Their Primary Model
SSNIP
The Small but Significant Non-Transitory Increase in Price
© 2006 David Williams - [email protected] 23/64
DOJ Methods in Total
( )( )
p,p,ji
ijj i
px ydp x y
ε∂
=
( ) ( )2
2
j j kj M j M k M
HHI M S R R∈ ∈ ∈
⎛ ⎞= = ⎜ ⎟
⎝ ⎠∑ ∑ ∑
SSNIP
© 2006 David Williams - [email protected] 24/64
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
HHI M S R R∈ ∈ ∈
=
=
=
⎛ ⎞= = ∈⎜ ⎟
⎝ ⎠∑ ∑ ∑
© 2006 David Williams - [email protected] 25/64
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−−
∈ ∈ ∈
⎛ ⎞⎛ ⎞ ⎛ ⎞= = =⎜ ⎟⎜ ⎟ ⎜ ⎟⎜ ⎟⎝ ⎠⎝ ⎠ ⎝ ⎠∑ ∑ ∑
© 2006 David Williams - [email protected] 26/64
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=
© 2006 David Williams - [email protected] 27/64
Example HHI from US vs. MCSF
www.usdoj.gov\atr\cases\ms_exhibits.html
© 2006 David Williams - [email protected] 28/64
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∈
=
= = + + + =∑
© 2006 David Williams - [email protected] 29/64
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∈
=
= = + + + =∑
That’s very high!
© 2006 David Williams - [email protected] 30/64
This leaves Open Questions
O’reilly Press: Anatomy of a Linux System
© 2006 David Williams - [email protected] 31/64
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.
© 2006 David Williams - [email protected] 32/64
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
© 2006 David Williams - [email protected] 33/64
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
© 2006 David Williams - [email protected] 34/64
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
© 2006 David Williams - [email protected] 35/64
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
© 2006 David Williams - [email protected] 36/64
Create Quasi-Rents and Holdups Relationship Specific Investments Rent Quasi-Rent
( )2I Q p c− ⋅ −
( )* *Q p c Iπ = ⋅ − −
( )*2Q p p⋅ −
© 2006 David Williams - [email protected] 37/64
Create Quasi-Rents and Holdups Relationship Specific Investments Rent Quasi-Rent
( )2I Q p c− ⋅ −
( )* *Q p c Iπ = ⋅ − −
( )*2Q p p⋅ −
Now your transaction partner can extract the difference
© 2006 David Williams - [email protected] 38/64
Create Quasi-Rents and Holdups Relationship Specific Investments Rent Quasi-Rent
( )2I Q p c− ⋅ −
( )* *Q p c Iπ = ⋅ − −
( )*2Q p p⋅ −
Now your transaction partner can extract the difference In a hold-up
© 2006 David Williams - [email protected] 40/64
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
© 2006 David Williams - [email protected] 41/64
Hello... Holdup... Mathematica While[True, Print["Hello, world!"]]
© 2006 David Williams - [email protected] 42/64
Hello... Holdup... Perl print "Hello, World!\n" while (1);
© 2006 David Williams - [email protected] 43/64
Hello... Holdup... SAS // EXEC SAS
//SAS.SYSIN DD *
DATA NPUT;
INPUT OUT $CHAR12.;
CARDS;
HELLO WORLD!
PROC PRINT;
/*
© 2006 David Williams - [email protected] 44/64
Hello... Holdup... S & S-PLUS # Hello world
# This is the Endless loop version which prints to standard output.
while (TRUE) { cat("Hello world!\n") }
© 2006 David Williams - [email protected] 45/64
Hello... Holdup... Visual Basic Private Sub FOrm_Load()
Static I
I = 1
for I = 1 to 10
msgbox "Hello World"
Next I
end sub
© 2006 David Williams - [email protected] 46/64
Hello... Holdup... Microsoft SQL 6.0 again:
select 'Hello, World!'
goto again
© 2006 David Williams - [email protected] 47/64
Hello... Holdup... Dos batch file @echo off
:top
echo "Hello, World!"
goto top
© 2006 David Williams - [email protected] 48/64
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 */ }
© 2006 David Williams - [email protected] 49/64
Hello... Holdup...
Windows 3.1 API #include
int PASCAL WinMain(HINSTANCE, HINSTANCE, LPSTR, int)
{
return MessageBox(NULL, "Hello World", "", MB_OK);
}
© 2006 David Williams - [email protected] 50/64
© 2006 David Williams - [email protected] 51/64
In the End: Some Fair Play
© 2006 David Williams - [email protected] 52/64
In the End: An Icon at Last
© 2006 David Williams - [email protected] 53/64
In the End: An Icon at Last MODIFIED FINAL JUDGMENT
(Originally Entered November 12, 2002 ; Modified _September 7, 2006)
© 2006 David Williams - [email protected] 54/64
In the End: An Icon at Last MODIFIED FINAL JUDGMENT
(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;
© 2006 David Williams - [email protected] 55/64
In the End: An Icon at Last MODIFIED FINAL JUDGMENT
(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;
© 2006 David Williams - [email protected] 56/64
In the End: An Icon at Last MODIFIED FINAL JUDGMENT
(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
© 2006 David Williams - [email protected] 57/64
In the End: An Icon at Last MODIFIED FINAL JUDGMENT
(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
© 2006 David Williams - [email protected] 58/64
In the End: An Icon at Last MODIFIED FINAL JUDGMENT
(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
© 2006 David Williams - [email protected] 59/64
In the End: An Icon at Last MODIFIED FINAL JUDGMENT
(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
© 2006 David Williams - [email protected] 60/64
In the End: An Icon at Last MODIFIED FINAL JUDGMENT
(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
© 2006 David Williams - [email protected] 61/64
In the End: An Icon at Last MODIFIED FINAL JUDGMENT
(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
© 2006 David Williams - [email protected] 62/64
In the End: An Icon at Last MODIFIED FINAL JUDGMENT
(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
© 2006 David Williams - [email protected] 63/64
What, Like the Shell32.dll Icons?
© 2006 David Williams - [email protected] 64/64
Questions?