Is Microsoft the engine driving innovation and growth in the marketplace, or is it an obstacle to competition? Even advocates of the free market are divided as to the answer. Predictably, many have leapt to the defense of Microsoft, seeing Bill Gates as a capitalist hero with the government playing its usual role as the villain of the story. But there are notable dissenters, including Robert Bork, a long-time antitrust skeptic and advocate of free markets. Has Microsoft abused its market power? Will the government's action do any good?

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An affirmative opinion ...

Microsoft is no ordinary company, and its proprietary operating system is no ordinary product. Microsoft's ownership of Windows lets it write the rules for all of us. No matter how much consumers may want a particular software product, software developers can only do what Windows lets them do.

Microsoft has great power -- concentrated and centralized power. We don't trust the government with that kind of power, and we shouldn't trust Microsoft all that much more. If we value innovation, competition -- our liberty even -- we must watch Microsoft closely and act swiftly if it abuses its power. That is exactly what has happened, and exactly why the government's antitrust case is justified.

We usually could trust the marketplace to punish such abuses, but it may not operate so effectively in this instance. Technology markets tend to display what economists call "increasing returns" or "network effects." Microsoft's aspiring competitors might prefer the term Catch 22. Everyone uses Windows because everyone writes software for Windows. Everyone writes software for Windows because everyone uses Windows, and so on. The product has more value to its users as more people use it.

These effects promote what is called "lock in." It will be hard to convince consumers to switch to a new operating system until many programs for it are available, but few will risk developing for a new operating system unless many users adopt it. Moreover, consumers will be reluctant to switch for fear that their old files would be incompatible with their new system and for fear that they would be unable to share files with clients, customers, suppliers, and others. Throw in the cost of retraining, and people are very unlikely to switch.

We may have passed the point where Microsoft can be beat. It only needs to stay marginally innovative (witness the fact that Windows 98 is no great leap forward) to maintain and expand its hold.

Microsoft's lock on the operating system market has dire consequences. As Microsoft tries to pull more and more products into its orbit by adding them to its operating system, our choices and our freedom decline. We will have to live by Microsoft's rules, proceed under the plans that Microsoft makes for us.

Bill Gates' fatal conceit is that he can continue to add code and functions to his operating system to anticipate and meet our every new need. But Microsoft may have the market power to impose his fatal conceit on all of us. The day is coming when computers will be ubiquitous, so woven into the fabric of our daily lives that we barely notice them. Bill Gates' vision for that day is "Windows everywhere" -- if our toaster has a computer chip, it will run Windows. We would be much better off if that vision is not realized.

Instead, we need freedom, competition, and evolution. One operating system cannot meet all needs. Let a thousand operating systems bloom. Instead of playing by Microsoft's rules, let something like Sun's newly-announced Jini enable different programs and operating systems to communicate, to compete, and to adapt, so that new and better technologies emerge. The market will never be truly free if we allow Microsoft to abuse its market power.

• Department of Justice Antitrust Case Filings for U.S. vs. Microsoft
• Is Microsoft a Monopolist? papers from a Progress and Freedom Foundation conference on February 5, 1998.
• The Official Anti-Microsoft Home Page
• The Boycott Microsoft Home Page
• US Department of Justice Vs. Microsoft: Economist Brian Arthur, the primary architect of the theory of increasing returns and lock-in, explains his views on the Microsoft Case.
• The More You Sell, the More You Sell: Brian Arthur interviewed by Wired Magazine.

Debating in the negative ...

A lawsuit against Microsoft has no place in a legal system that seeks to advance the goals of consumer welfare and individual autonomy.

The antitrust suit filed by the United States Department of Justice and 20 U.S. States is both bad for consumers and sets a disturbing precedent for government interference in the most private of decisions: what people pay money for and what people accept money for.

Even if antitrust actions were justified in some situations, there would be no justification for using them against a company with as little market power as Microsoft. As little market power? Yes. The nature of the computer software industry makes it among the most dynamic the world has ever seen. The life cycle of a product is two years only if the company selling it is very lucky. Because software doesn't deteriorate with age, a software company competes not only against other companies but against its own installed base of software (why should people buy a new product, if their existing product works just fine).

Furthermore, the software industry doesn't have anything like the capital requirements of traditional smokestack industries. Any hint of monopoly pricing could easily bring in a whole host of competitors. The only way to stay on top in this industry is to continue to make superlative products.

In the pending actions against Microsoft, Microsoft is accused of improving their products in such a way that they force out their competition, namely Netscape. But isn't improving their products just what we want companies to do? Isn't offering consumers more for less money by making a Web browser part of their operating system the sort of behavior we would expect from a competitive firm, not a monopolist?

The response that Microsoft's plan is to drive all other firms out of the market and then raise prices approaches the absurd. It is difficult, if not impossible, to find any example of this strategy actually working any time in the real world. Why? Because empirically, there are always new entrants to the relevant market.

The notion that it would be to Microsoft's advantage to integrate a browser with Windows to "leverage" its dominance in the operating system market is similarly unlikely. Only with the most extravagant of assumptions can one make even a theoretical case that tying would be anticompetitive.

The notion that Microsoft is competing unfairly by integrating its products can only be made with a straight face by someone who doesn't really use their computer. The strength of Microsoft products is often not that they have especially innovative new features, but rather that they are so well integrated that they are easy to use together. Anyone who has wanted to use the address book on their computer to easily send out a form letter appreciates the inherent value of integration. Integration of browsing into the Windows operating system similarly allows for reading e-mail messages written in HTML, for saving Web pages for later reference, and a whole host of other advantages.

Even if one believed that Microsoft was in some way behaving badly, do we really want the government telling us how firms have to design their products? The products do, after all, belong to Microsoft. At least firms have the market as a check on what they do -- after all, no one has to buy their products. Government is at best subject to far cruder constraints. Is the lesson of the public choice economists so soon forgotten?

• Microsoft Legal Issues: Microsoft responds to its critics.
• Index of Microsoft Legal Documents filed in the 1997-1998 proceeding over interpretations of the 1995 DOJ/MS consent order.
• Microsoft Motion for Summary Judgment
• Overview of Section 2 of the Sherman Act And Its Application to Microsoft by Charles F. Rule, April 29, 1998.
• The Case Against the Case Against Microsoft: Why the Justice Department is barking up the wrong operating system by Charles F. Rule, Slate, Nov. 12, 1997.
• Target: Microsoft, the Free-Market.Net Policy Spotlight on Microsoft and Antitrust.
• Technology Innovation: Competitors, Predators and Antitrust, the transcript of a breakfast conference sponsored by The Independent Institute with Stan Liebowitz and Stephen Margolis, the leading critics of the theory of lock-in.
• Stan Liebowitz's Home Page provides copies of his papers criticizing the theory of lock-in.
• Committee for the Moral Defense of Microsoft