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Win One for the Consumer

Article published on TCS on September 01, 2004.

Last May, the European Commission concluded that Microsoft Corporation broke EU competition law and fined the US software giant €497 million. It also ordered Microsoft to disclose to competitors information concerning Windows OS and to offer a version of it without Windows Media Player. This week the Court of First Instance in Luxembourg will decide if Microsoft has to apply the penalty before the final judgment, which will be given in three years — the time needed to examine the case.

At the end of August 2004, Airbus Industrie gave its support to Microsoft, fearing that the Commission’s decision would set a dangerous precedent and could threaten its operating structure. But the firm last week withdrew its challenge to the EU antitrust ruling against Microsoft — a revealing change of heart that may have more to do with transatlantic politics than competition policy. The episode unfortunately shows the extent to which the business community misunderstands the real challenge of the case. EU antitrust laws are indeed potentially very harmful to industry and consumers. It is important to take sides if one wants to promote real competition in Europe.

EU Competition Commissioner Mario Monti condemned Microsoft because of its alleged abuse of dominant position. It is indeed generally accepted that the dominant position of the most powerful businesses will threaten competition when an industrial sector is characterized by a very small number of firms, representing a major proportion of output. This idea rests upon the belief that when power is concentrated in the hand of one actor, he does not have to fear losing his customers if he does not adjust his prices. The dominant firm is one that controls prices against consumer interest and makes higher profits than it would make in a situation of real competition, to use Commissioner Monti’s words.

This is a false picture of competition. This is not a question of the degree of an industry’s concentration, but a process through which firms have been able to emerge. Because it is impossible to say if smaller or bigger firms are preferable, one has to be theoretical in order to find an answer to the problem of concentration without falling into arbitrariness.

Think about it. We all aspire to be monopolists, that is, we wish to be rewarded for our past inventiveness for as long as possible. What is important is that the survival of a monopoly must not rest upon regulatory decisions but upon the always-renewed approval of consumers. To do so, it is enough to keep the market open to new competitors who will obtain the dominant position if they find a better way to serve the consumer.

Competition is not a result but a process. Microsoft was not born dominant but it has become dominant through time thanks to consumer support. They have given to this firm the power to be what it is today.

The court should decide against the Commission because this will promote true competition in Europe and will stop the EU executive from continuing on its disastrous path of serving special interests against the consumer. What the European Commission is challenging is consumer sovereignty and it certainly is the goal of all private firms to fight for it. This is the only reason why industry should take sides with Microsoft, not in order to defend the firm but to defend businesses that best serve the consumer.

The author is director of the Institut Economique Molinari

Cécile Philippe

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