Acton Commentary

The EU Commission’s Monopoly of Knowledge


The European Commission has launched another antitrust investigation against Microsoft just four months after the Seattle-based software maker paid a 497 million Euro fine for allegedly freezing out rivals in the server software and media player markets. In addition to the fine, Microsoft was forced to give program developers access to previously private information about its Windows operating system.

The EU Commission now sees enough evidence to start a new investigation on two complaints. One was brought forward by a group of competitors representing IBM, Sun Microsystems and eight other companies. They claim that Microsoft does not provide sufficient information to allow rival products to work with Microsoft Office, the popular suite of programs that includes Word and Excel. The other complaint was made by Opera, a Norwegian maker of Web browsers, which accuses Microsoft of preventing consumers from using internet browsers other than Microsoft’s Internet Explorer.

This browser complaint in particular has already been made against Microsoft in the United States. The bundling of its browser and its operating system was challenged the late 1990s, but a U.S. appeals court rejected a lower court’s finding that Microsoft illegally tied Internet Explorer to Windows to prevent competition. The federal government and the company finally settled the case in 2001. Microsoft was saved from a possible forced spin-off of its the browser business but had to make concessions to competitors by sharing information about its software code and opening its operating system to the products of other companies.

The European Commission likes to think of itself as being tougher than the U.S. Justice Department when tackling the dominant market position of a company. But the real question should not be about who is tougher in combating the dominance of market leaders. In fact, there is a divergence of philosophies of competition between the EU and the United States. Whereas the commission sees the benefits of consumers always in danger when the success of a company’s products reduces the level of competition, the United States on the whole tends to favor a more pragmatic approach when evaluating what is good for the consumer. These different outlooks can lead to strikingly different interpretations and results in competition policy.

By and large, the EU approach resembles the method of a lawyer who works with definitions of market dominance which trigger clearly established procedures. In contrast, U.S. authorities see the issue of competition a bit more through the lens of the economist who is more willing to collect empirical data before reaching a conclusion. On a narrow definition of market dominance, for example, the case against Microsoft’s bundling of Windows and Internet Explorer might have led to the break up of Microsoft. Research published by NYU’s Stern School of Business, however, has shown that U.S. consumers have saved billions by buying the browser and the operating system as an integrated product.

A consequence of these divergent outlooks on antitrust regulation is that companies have to comply with inconsistent legal requirements across the two major markets of the world economy. On the one hand, this produces legal uncertainty for those companies who have reached a strong market position because a successful defense against antitrust allegations in one market does not say much about the same allegations in the other. On the other hand, it creates more opportunities for competitors who have been less successful in the marketplace to undermine the position of the market leader through legal action. They can choose the antitrust forum with the “toughest” regulatory regime to file a complaint and thereby hope to gain the market share that they were not able to get through direct competition.

This argument not only concerns aspects of efficiency but also touches upon the vital moral issue of subsidiarity, which maintains that such decisions should be made by those it affects most directly. In this case, that would be the consumer. The European Commission in Brussels claims the right to know what is best for the common user of computer software everywhere in Europe. From this “superior” knowledge it derives the power to force an American producer to design its products in a particular way. It seeks to impose a substantial financial punishment on Microsoft for selling a product Microsoft believes best serves the consumers.

Of course, Microsoft does not bar competing products from being installed on its operating system. From its point of view, it offers an integrated product that is user-friendly to those consumers who have no time or interest in downloading and installing separate products. Ironically, in fighting the Microsoft monopoly, the European Commission pretends to have a monopoly of knowledge that it imposes on consumers at the cost of more user-friendly solutions, all at the behest of Microsoft’s competitors.

But who ever gave the commission the moral authority to choose between software providers for you and me? The commission’s claim to know the needs of the consumer better than Microsoft is undermined simply by looking at the respective websites. Microsoft offers a myriad of help and support pages with its products, whereas the commission “undertakes to answer enquiries in the appropriate manner as quickly as possible.” In other words, you may or may not get an answer from Brussels. If you had to choose between Microsoft and the European Commission to respond to your questions, which one would you prefer?

Bernd Bergmann, a native of Hanover, Germany, is a student of constitutional law and an intern at Istituto Acton, the Rome office of the Acton Institute.