Before Intel was fined €1.06 billion in 2009, Microsoft had long held the dubious honour of being the corporation subject to the highest antitrust fine by the European Commission. In March 2004, then Commissioner Mario Monti fined the US giant €497.2 million, asking Microsoft at the same time to provide EU customers with a version of Windows unbundled with its Media Player.
Surely that’s now water under the bridge. Recently Microsoft formally turned to European institutions to file its first official complaint, accusing Google of a ‘pattern of walling off content and data’ on the internet to prevent other search engines from competing effectively. It may seem ironic that a former alleged monopolist is now resorting to lawyers to challenge today’s alleged monopolist, but this is actually an enlightening story.
The entire exercise by which the Commission, in 2004, wanted to strike a blow at Microsoft was an exercise in forecasting. The Commission believed that by virtue of its relevant market share in the market for desktop computers Microsoft may have been able to leverage an unfair advantage in the market for playing media files on your PC. With the benefit of hindsight, such a contention looks questionable to say the least. Even if Microsoft actually tried to leverage the dominance of its operating system, new players emerged in the market and smashed such an attempt in the way entrepreneurs do: by better ideas and innovation. Apple, considered almost irrelevant in the computer market in 2003, has established the real standard in the fruition of media content with its iPhone/iTunes.
The Commission’s exercise in forecasting proved to be questionable, and such an outcome was predictable. New technologies evolve quickly and of course - as we know from Hayek - relevant knowledge is dispersed in society and cannot be easily accumulated and processed by central authority. Even if that central authority claims to do so for the benefit of ‘competition’.
Another case in point is represented by the EU investigation against Intel. Luca Mazzone and I discuss it in this paper, which we presented last month at the IEA. (See also this very interesting paper by Joshua Wright on the Intel US case.)
Intel has been the last in a series of antitrust cases targeting hi-tech companies: the European Commission found it guilty of abusing its dominant position, for its conduct towards a group of Original Equipment Manufacturers (OEMs) and a German retailer. The ruling is based on the principle according to which a supplier enjoying a dominant position should not bind to itself customers or distributors: its conduct is considered abusive.
Picture yourself entering a shop and being granted a conspicuous discount by the seller. Would you feel abused? The Commission’s allegation is that, since the discount was given to you by the shop which is already the most prominent in town, competition is negatively affected as others won’t be able to compete in a stronger way. And if your demand is met by the dominant seller’s supply, competitors will be slower at getting to the market with their new products.
The microchip market is now dominated by two participants, Intel and AMD. But has consolidation negatively affected competitive development? Looking at prices (see chart below) it doesn’t really seem so, as the trend shows declining prices. Performances increased sharply too: as anybody who had a computer in 1996, and has one now, can easily testify.
Would innovation have been faster under another market structure? The question is interesting, but should we allow political authorities to determine market structures, assuming that they know better?
This is what we should ask ourselves - whenever competition, between Intel and AMD or between Microsoft and Google, moves from market to the court. From competition policy to old-style industrial policy, the step could indeed be short.
Dr Mingardi is Director General of Istituto Bruno Leoni (www.brunoleoni.it), an Italian free-market think-tank.