Economists debate Microsoft's impact on the browser market
May 22, 1998
Web posted at: 7:45 PM EDT
by Brian McWilliams
-- 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
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."
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