The Latest EU Antics and Microsoft

by on May 8, 2007 · 6 comments

The EU continues to issue what one hopes are wild threats against Microsoft. Now EU antitrust authorities have revived the possibility of “structural remedies,” that is, breaking Microsoft up. This apparently because Microsoft is seen to be resisting compliance with earlier orders.

Interesting. What is the theory behind this? The focus of antitrust law is supposed to be consumer welfare (not, say, competitor welfare). So the earlier commission orders were supposed

to further consumer welfare. But now a different remedy is being considered. Is this because it would *better* further consumer welfare? No, apparently, it is because it is punitive.

It is doubtful that consumers’ interests would be furthered by a Microsoft breakup. Let us revisit the arguments that were made in the United States when restructuring was floated here. The sub-Microsofts (divided horizontally or vertically or what have you) might coordinate with one another and their products continue to interoperate, but more likely they would seek to differentiate themselves. Consumers stand to lose the benefits of backwards compatibility and interoperability that the market has gained from having Windows as a overwhelmingly popular platform. Continued interoperability is possible, of course, but the transaction costs inherent in achieving that would pile on, as the sub-Microsofts and developers vie to coordinate with one another.

And where would the EU’s beloved open source ventures be in all this? They might get a leg up. But more likely they would flounder in the turbulence as the proprietary firms jockeyed for position. How many platforms does the market have room for as it seeks to stabilize again? Anyone want to take bets? The EU regulators seem to be willing to bet–but then like regulators everywhere they are not betting their own wealth.

Every antitrust order–like regulation generally–suffers from being backwards-looking. It is based on developments over the past five or ten years, and in fast-changing tech markets is likely to be outdated even before the ink dries on the page. The more ambitious the order, the more foolish the authorities will look as the dislocation of resources they have wrought become apparent.

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