Caught in Europe’s competition dark ages

Published in Business Spectator (Melbourne), 14 March 2013

While it was still busy sorting out the mess that is the European economy, the European Commission last week could at least score a small victory: it issued a €561 million fine to Microsoft for breaching undertakings given in the software giant’s long-running antitrust dispute with the EU.

The new fine brings Microsoft’s total contribution to the EU budget over the years to a total of €2.2 billion. The basic reason for all these fines has always been the same: the EU Commission accuses Microsoft of bundling software such as Media Player or Internet Explorer with their Windows operating system.

In the current case, Microsoft had failed to offer users installing the Windows 7 Service Pack 1 the option of choosing an alternative browser such as Firefox, Opera or Chrome. Between May 2011 and July 2012, some 15 million users were given Internet Explorer by default.

As Microsoft claims, this was a simple mistake. The Redmond-based company had previously agreed to allow customers to pick their browser when installing Windows. Its programmers had forgotten to include such an option in the Windows 7 Service Pack 1. However, neither Microsoft’s guilty plea nor their promise to make good for their mistake by extending their original undertaking with the commission could avoid the hefty fine now imposed.

To be clear, EU Competition Commissioner Joaquin Almunia certainly acted legally and within his powers. In fact, he could have fined Microsoft even more as EU law allows for sanctions worth up to 10 per cent of the company’s global annual turnover, which would have been more than €5.5 billion. Nevertheless, the ruling is excessive and it only exemplifies the absurdity of antitrust law.

A simple calculation is all it takes to demonstrate why €561 million are in no way adequate for Microsoft’s alleged wrongdoing. For every single user who was not given the choice of installing another browser, the commission is fining Microsoft €37.40.

It is hard to see the harm done to EU consumers by not having been prompted to choose Internet Explorer or another browser. It is not as if they had been made materially worse off by Microsoft’s omission. They could have downloaded and installed Chrome, Firefox or any other software straight away at no additional cost.

In fact, that is what many users already do. Despite a Windows market share of around 90 per cent in the EU, Microsoft’s browser is only used by about 55 per cent of users according to the European Commission. However, data from StatCounter show that it is now a threeway race between Internet Explorer (24 per cent), Firefox (29 per cent) and Chrome (35 per cent) in Europe. Not only is Internet Explorer is no longer dominating the European market, it’s actually in third place.

Consumer behaviour is making a mockery out of the commission’s claims that their pursuit of Microsoft is doing anything for consumers. Today’s consumers are aware of the existence of alternative browsers and media players – and indeed operating systems. They hardly need to be nannied by well-meaning politicians and competition authorities to find free software that works for them.

The programs in question are widely available, free of charge and easy to install. Not least due to repeated security issues with Internet Explorer, rival products received a boost over the past years. For all these reasons, Microsoft’s own browser had long lost its dominance before the EU even intervened via its antitrust case.

The technology market is changing so fast that any antitrust action is likely to come too late in any case. That was the experience of the 13-year long antitrust suit against IBM from the late 1960s to the early 1980s. After a costly legal battle between IBM and the US Justice Department, the case was eventually dismissed without merit. In the meantime, IBM had lost its dominant market position not due to the antitrust case but because the mainframe computers of the past were giving way to a new generation of personal computers – which IBM no longer dominated.

Even without antitrust action, IT markets change all the time. Back in the late 1990s, Yahoo dominated the way we searched the internet – and then Google started. Back in the early 2000s, MySpace was the dominant platform for social interactions on the web – and then Facebook took off.

Antitrust law never really made much sense anyway unless you believe in the possibility of economics textbook style ‘perfect competition’. In the real world, markets are never perfect. But where market entrance is not artificially blocked by regulations, markets are usually dynamic enough to deal with dominant positions on their own.

This of course takes time, but it does not require antitrust lawyers or competition authorities. Wherever there are monopoly profits in an open market economy, it is usually not a question of if but of when these will be reduced by new competitors entering the market.

By not trusting these market forces, the EU Commission has provided hundreds of lawyers employment. It has also secured some extra revenue for itself. With a bit of goodwill, we may count both effects as the positive outcomes of this Microsoft antitrust saga.

But beyond this, the case has not done anything that the market could not have delivered on its own. Nor has it actually made a positive difference to consumers.

All it did was once more to exemplify the limited use of antitrust law in general – and of antitrust in the IT sector in particular.

Exit mobile version