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Re: Microsoft's Zone

  I agree with Michael Ward that the government should be cautious in
  interfering with issues relating to product definition, particularly in
  an area like software, where one sees so much innovation.  However, I
  would not foreclose government intervention, and the Microsoft case with
  the Browser is one area we think intervention is needed.  Microsoft is a
  firm that controls the OS for about 90 percent of the world's PCs, the
  firm's margins and staggering market capitalization confirm the notion
  that entry into this businesses is quite difficult.  Microsoft is also
  quite clear that it intends to use the OS very aggressively to destroy
  its rivals in a wide range of software and electronic commerce areas. 
  It seems to me that this is an area where conduct rules and limits on
  bundling are appropriate, indeed badly needed.  That doesn't mean the
  government needs to adopt a general rule which would be completely
  inappropriate in other contexts.  Is it possible for antitrust
  authorities to use common sense in making these distinctions?   I think
  so.  The AT&T break-up was well thought out.  The remedies may not be
  exactly the same here, but it does suggest it is not unreasonable to
  expect antitrust officials to get things right, on matters which are
  very important, and highly technical.
  Michael R. Ward wrote:
  >         If the engine in my Ford blows out, no matter how much I plead, the
  > dealer will not replace it with a Chevy engine.  When the compressor on my
  > Hiel AC unit went out, I could not get a Trane compressor installed without
  > the rest of the Trane unit.  Foreclosure?  Perhaps these firms have
  > optimized their engines and compressors to work with their other components.
  > They take advantage of the unique strengths of one firm's system or another.
  > Doing so makes the product more valuable to users of that system, but
  > worthless to users of a different system.  Moreover, these markets also
  > operate in a "networked environment" (of customers, dealers, repairers,
  > parts suppliers) where issues about "bundling, interoperability and
  > compatibility" occur, but are they "opportunities to get and defend market
  > shares"?
  >         Universal standards are efficient in the productive sense, but
  > perhaps not in the al locative sense.  Competition often leads firms to try
  > to differentiate their products to appeal to heterogeneous consumers.
  > Differentiation means that firms will place higher values on those pieces of
  > the standard that make their product more attractive.  Partner firms have
  > incentives to build on the strengths incumbent in this differentiation.
  > Sometimes developing a new product means extending a standard, developing a
  > new standard or abandoning an old standard.  Imagine imposing universal
  > interoperability standards on the various components of cars and ACs.
  > Makers of, say spark plugs, would have to make sure they work with all other
  > possible components rather than optimize them for a specific component, say
  > a carburetor.  We would likely end up with much less variety in completed
  > units.  So, competitive, which tends to allocate goods efficiently, may
  > require, or lead to, standards that are not universal, and, perhaps, a
  > sacrifice in productive efficiency.
  > Mike
  > BTW, while my dept.'s ACELink course materials require Netscape, our
  > business office Intranet requires MSIE4.0.  Either running the two is not
  > difficult or we suffer from similar problems as many bureaucracies (a
  > distinct possibility).
  > At 05:31 PM 10/25/1997 -0400, Jaime Love wrote:
  > >DeBrock, Larry wrote:
  > >> You are correct that this issue of open standards is a concern, just as
  > >> Mr Schultz and I suggested.  However, my point is that this listserv
  > >> seems to have already acted as prosecutor, judge, jury and executioner
  > >> against Microsoft.  As one example, just after my post, you yourself
  > >> posted another message titled "Another example of EI4.0 only Web site".
  > >> Before the flames start, I am NOT trying to defend MS.  I just want to
  > >> point out that not all problems are "MSIE ONLY" sites.
  > >
  > >
  > >   I agree with you that this isn't only a MS problem, and more
  > >generally, that it is likely to be a rather common problem in a
  > >networked environment where issues about bundling, interoperability and
  > >compatibility become opportunities to get and defend market shares.
  > >
  > >   I am quite pleased about the current DOJ effort, but it does seem
  > >fairly narrow at this time, and who knows if DOJ or other competition
  > >officials have either a strategy or the legal tools to address some
  > >obvious problems.  We are spending some time looking at government
  > >procurement as a different way to put pressure on firms to support open
  > >standards, and also to keep competitive alive in key sectors of the
  > >computer and software industry.  (As was done in the IBM case some time
  > >ago).
  > >
  > >   Jamie
  > >
  > >
  > ----------------------------------------------------------------
  > Michael R. Ward                                   (217) 244-5667
  > Dept. of Ag. and Consumer Econ.                   ward1@uiuc.edu
  > University of Illinois          http://www.uiuc.edu/ph/www/ward1
  James Love | Center for Study of Responsive Law
  P.O. Box 19367 | Washington, DC 20036 | http://www.cptech.org
  voice 202.387.8030 | fax 202.234.5176 | love@cptech.org