A glimpse of reality

Posted: Jun 27, 2003 12:00 AM

According to The Times of London, the city of Munich has replaced Microsoft Windows with a Linux operating system in 14,000 of its computers. This provided a glimpse of economic reality, completely contrary to the premise on which Judge Thomas Penfield Jackson convicted Microsoft of violating the anti-trust laws.

Microsoft's "control" of the market for computer operating systems was based on calculating that company's share of the sales of operating systems for personal computers that used Intel-type chips. Judge Jackson eliminated all Apple computers, all network systems, and PCs that used operating systems such as Linux.

The more narrowly the market is defined, the easier it is to get high percentages showing one company's "control" of the market. That has long been a favorite tactic in prosecuting anti-trust cases.

What happened in Munich showed that this does not make any sense. Obviously there are things you can do with a Microsoft operating system that you can also do with a Linux system. Why then eliminate Linux systems from the definition of competitors in a market for which you are calculating percentage shares?

There is no denying that the two things are different. Otherwise they wouldn't be two things. But the question is whether that means that they cannot compete in the marketplace.

What is called anti-trust "law" might more accurately be called anti-trust tradition or even anti-trust ideology. Its failure to define what competition means and doesn't mean and its relying on murky notions like "control" of the market make it more vague than other laws that courts have struck down as "void for vagueness."

We all agree that the World Series is a competitive process. It is competition whether one team wins four straight or the Series goes all the way to seven games.

In anti-trust "law," however, the fact that one company's product is overwhelmingly preferred by consumers and vastly outsells similar products is taken to mean that the "market" is "controlled" by the company with the bulk of sales, so that there is a lack of competition.

If baseball were not exempt from anti-trust laws, the New York Yankees could be fined and punished for having won so many World Series. Tiger Woods could be in big trouble in golf as well.

Competition means that there are winners and losers. When someone wins big, that is not a sign that the competitive process did not exist or had something wrong with it. Too many judges see the anti-trust laws as protecting competitors, instead of protecting competition as a process.

The rhetorical device of using sales percentages as indicators of "control" of a market confuses end results with the process that led up to those results.

In the late 1980s, all the electric portable typewriters made in the United States were made by Smith-Corona. But this 100 percent "control" of its market, did not produce monopoly profits. In fact, Smith-Corona ended up filing for bankruptcy, as the spread of computers decimated the typewriter market.

Even before then, Japanese manufacturers were selling more typewriters in the United States than Smith-Corona was. But, because of the artificial definitions used in anti-trust cases, foreign competitors can be excluded when figuring some company's percentage "control" of the market.

Such legal rhetoric often ignores economic realities. You cannot meaningfully define a market according to the physical or technological characteristics of a product. Computers can be substituted for typewriters, just as Linux can be substituted for Windows.

In Spain, when a high-speed train began to run between Madrid and Seville, the division of passenger traffic between rail and air travel went from 33 percent rail and 67 percent air to 82 percent rail and 18 percent air.

Trains are not a perfect substitute for planes at all distances, nor is Linux a perfect substitute for Windows in all uses. But to totally exclude it from the definition of the market that Microsoft "controls" is all too typical of the unreality of anti-trust "law."