The Right Remedy

Bresnahan, Timothy F., "The Right Remedy" (March 2002). Stanford Law and Economics Olin Working Paper No. 233. Available at SSRN:

Abstract:

Antitrust law respects economic logic by establishing two goals for remedy, restoration of competition harmed by the anticompetitive acts and prevention of further anticompetitive acts. Microsoft has a pattern of anticompetitive acts, 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 resort to anticompetitive means 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 calls for 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, divestiture of the company into an applications and an operating system company restores competitive conditions very like those destroyed by the anticompetitive acts. Absent the anticompetitive acts, Microsoft would have lost the browser war, and other firms would have commercialized useful technologies no w controlled by Microsoft. Divided technical leadership, which could be accomplished by having an independent browser company in the late 1990s or an applications company now, lowers barriers to entry and competition in many markets. It was exactly this route to an increase in competition that Microsoft avoided by its anticompetitive acts. Second, ending Microsoft's unique position in the industry offers innovative new technologies the choice of two mass-market distribution partners, either AppsCo or OSCo. The divestiture will do much to reduce the motive to violate and also to reduce the effectiveness of future anticompetitive acts. It restores conditions for competitive innovation at a moment in technology history when having a single firm set the direction of innovation in PC and end-user oriented internet markets is most unwise.

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