Microsoft’s New Antitrust Strategy
When Microsoft recently supported the Texas attorney general’s antitrust litigation against Google, it easy to point the finger and cry “hypocrite.” After all, when Microsoft was accused of monopoly and the US and European Union pursued anti-trust litigation, Microsoft — like IBM and Intel before it — claimed that its monopoly position was the product of its innovative activity and, for that reason, the spoils of its position were reward for innovating. Monopoly may not be the consumer’s desired outcome, but, so the argument goes, its profits are the prize that induces many to enter the contest.
Those who are skeptical saw Microsoft’s involvement as a reason why the litigation system was broken. Of course, Microsoft argues that the law gives them as much right as anyone to challenge Google. Law professor Josh Wright refers to this as an “antitrust karma” argument. The legitimacy of that argument is a deeper issue but what I am more interested is why Microsoft chose to shift sides so readily and what that reveals about how it views itself.
With respect to Google, Microsoft finds itself back in the entrant’s chair. Google has a dominant position in search and potentially more, and Microsoft is the one desperately trying to gain ground. From its short-term position, it is hardly surprising that Microsoft now sees antitrust law as something it can use to keep Google at bay. But the interesting question is what that tells us about Microsoft’s longer-term view of the innovating process.
The reason why this is an issue is that the narrative — innovators who generate monopolies should be allowed to exploit them — is one that should be somewhat appealing to an entrant. After all, should Microsoft succeed in dislodging Google in some areas, surely it would not welcome antitrust scrutiny. By taking a clear stance in favor of such scrutiny, as any legal counsel will tell you, they are undermining any future defense.
Microsoft likely understands this and had been deliberative in its new conduct — and that leads us to two possibilities. First, Microsoft may have changed its mind. It may now believe the counter-argument to the “monopoly as prize” theory, that entrants need barriers to entry removed as much as possible to have a proper chance of competing. (This is a position I personally hold as I articulated recently in this paper.)
Second — and more intriguing — Microsoft may no longer believe that in the markets in which it innovates — old ones (operating systems and office suites) and new (search and video games) — a monopoly position is the eventual outcome. You do not have to worry about future antitrust enforcement if you do not expect to be in a monopoly position. This may be a statement about the future of the information technology industry — it may no longer be a winner-take-all race to the top — or, rather, about where Microsoft sees its future.
Nonetheless, those analyzing Microsoft and its corporate strategy would do well to consider not just what successful antitrust enforcement against Google might do for Microsoft’s immediate market position. Rather consider what its behavior tells us about Redmond’s view of where its own future market position — and indeed the entire shape of the market — lies.
Joshua Gans is an economics professor at the Melbourne Business School, University of Melbourne. He is currently a visiting scholar at the Harvard University Department of Economics, and the author of the book Parentonomics.
Microsoft’s New Antitrust Strategy
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