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Luke Froeb, Sep 17, 2007
This piece was originally published on the author’s Management R&D blog, and is reprinted here with the permission of the author. The original post, and comments thereto, may be found here.
Every MBA program in every country teaches students to compete using the “four P’s” of marketing: price, product, place, and promotion. So when Microsoft began distributing its media player with its operating system, it would seem that it was competing by taking advantage of its low cost distribution channel (“place”) and by improving functionality (“product.”) Not so fast. Today, the Court of First Instance ratified the European Commission’s case against Microsoft, accusing it of “abusing its dominant position” by bundling its media player with Windows, and by refusing to supply “inter-operability information” to competitors. The Court seemed to be saying that because Microsoft was taking advantage of its advantages, it violated the antitrust laws. Disappointingly, the Court failed to articulate a principle that would tell firms when they are competing on the merits and when they are going to violate the increasingly murky European antitrust rules about dominant firm behavior. And, in an unfortunate choice of words that invites criticism from those who remember the bad old days of antitrust, the Court seemed to admit that Microsoft is a target because it is successful. The decision states:
In this case, Microsoft impaired the effective competitive structure … by acquiring a significant market share on that market.
In other areas of antitrust, e.g., mergers, the European Commission has adopted enforcement principles that condemn behavior based on its likely effect, and not on the share of the firm or on the form that the behavior takes, like tying (article). The Microsoft decision seems out of sync with the increasingly “effects based” analysis that guides Commission decisions in other areas. This decision will re-open speculation about whether European enforcement has a home country bias (would this case have been brought against a European firm?) and about the limits of Article 82 enforcement (what are they?). UPDATE: The wording in the Court’s opinion saying that big is bad may not just be an unfortunate choice of words. In an interview, Commissioner Nellie Kroes said, I want Microsoft’s market share to diminish to significantly less than 95%.