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Economists debate Microsoft's impact on the browser market

May 22, 1998
Web posted at: 7:45 PM EDT

by Brian McWilliams

(IDG) -- The U.S. Department of Justice is bolstering its case against Microsoft with internal memos written by company executives that allegedly discuss their plans for using Windows to dominate the browser marketplace.

One of the people with full access to that evidence is Franklin Fisher, a professor at the Massachusetts Institute of Technology. Years ago, Fisher worked the other side of the street as IBM's chief economic witness during the Justice Department's long antitrust investigation of Big Blue.

The Justice Department has retained Fisher to shore up its argument that Microsoft is unlawfully trying to leverage its Windows operating system monopoly into new markets. Included in the documents filed with presiding judge Thomas Jackson is a 12-page economic analysis of the competitive effects of Microsoft's actions relating to Internet Explorer.

The document concludes that bundling IE with Windows "can never make consumers better off than they would be with unfettered competition; and it is likely to make consumers worse off."

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Citing court restrictions, Fisher declined to comment on the Microsoft case. But the Justice Department has posted his article on the Web, along with one by David Sibley, an economics professor at the University of Texas at Austin.

Microsoft will probably have its own economists argue why integrating the IE technology into Windows is acceptable.

Stephen Margolis, chair of the economics department at North Carolina State University, says the government's action risks freezing further development of Windows. And while he concedes that Microsoft has a monopoly, Margolis says that monopoly doesn't mean Microsoft's integrated products will be a success.

"I don't think that adding products into the operating system has the effect of leveraging monopoly into new markets," Margolis says. "I think if they have good products that they include in the OS they will replace other products. But to the extent that they develop weak products to put in the operating system, all they do is raise their own costs and deliver something to the consumers that's worth less [to consumers] than it costs ... and weaken Microsoft's position in operating systems."

Fisher concludes that Microsoft's allegedly anticompetitive actions will "impede any innovation that threatens the dominance of Windows." In his 50-page analysis, Sibley concludes that Microsoft's actions are likely to "adversely affect the path of innovation in the software industry."

Margolis, on the other hand, says Microsoft recognizes that its success depends on the continued health of the software industry overall: "Microsoft seems to understand that they're healthier if there's a very healthy development industry. And I think for them to go around crushing firms willy-nilly every time [a firm] comes up with a really hot idea would unravel that."

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Related stories at IDG.net

• IDG.net's Microsoft news page
• Microsoft ships IE4 bug fixes (PC World)
• Active Desktop spooked by White Ghost applet (InfoWorld)
• Torn between two Web browsers (PC World)
• How to bypass Web hang-ups (PC World)

Related sites:

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• Microsoft Corporation
  • Microsoft motions, letters and press releases
• U.S. Department of Justice
  • Justice Department filings against Microsoft

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