A Journal for Western Man

 

Anti-Trust Regulation on

Companies Like Microsoft

is Based on Myth

Molinari Economic Institute

Issue CIII - May 26, 2007

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Old Superstructure

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A Rational Cosmology

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Statement of Policy

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Anti-trust bodies in different countries – like the DG Comp of the European Commission – impose fines or regularly penalize successful companies holding significant market shares in the name of an “abuse of dominant position.”

One of the biggest recent anti-trust cases certainly is the EC’s saga against Microsoft dating back originally to 2004. Brussels has advanced, 3 years later, to a new stage in its test of strength with Microsoft. Following record fines of several hundred million euros and a requirement to disclose strategic information to its competitors, the European Commission is now moving toward controls on the prices of this information.

Pernicious myths justifying anti-trust intervention

Several pretexts are put forward to justify such anti-trust interventions against “dominant” companies.” For example, they are considered as “coercing the market” to the extent that there are no major vendors offering alternative products and an absence of genuine choice for consumers. Companies are judged for abusing their “dominant” position in one sector to attack and kill competition in other niches of the market. In short, they are presumed to act anti-competitively, confiscating customers’ purchasing power.

However, from an economic point of view, competition plays across all sectors and may come not only from within a more or less narrowly defined one (the software niche, the niche of operating systems, etc.).

In the absence of legal barriers to entry, a so-called “dominant” company is always subject to competitive pressure coming also from the potential entrance of new players – whether “dominant” or not elsewhere, in another sector of the economy – which join the fray if consumers are not satisfied in the best possible way.

“Dominant” companies in one niche of the market are still constantly subjected to the consumers’ verdict and must continuously win their confidence. If they remain “dominant,” it’s because they are in a position to provide the best value to them.

Instead of favoring competition, anti-trust interventions decrease actual market rivalry and distort the market process.

Entitled, Five myths about the dearth of competition in presence of “dominant firms”: The Microsoft example, the study is available at http://www.institutmolinari.org/pubs/note20074en.pdf.

Information and interview requests:

Valentin Petkantchin, PhD
Director of Research
Institut économique Molinari
Rue du Luxembourg 23, Boîte 1
1000 Bruxelles, Belgique
Tél: +33 4 42 53 46 19

valentin@institutmolinari.org

This TRA feature has been edited in accordance with TRA’s Statement of Policy.

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