A:

On May 18, 1998, the Department of Justice filed antitrust charges against Microsoft (Nasdaq:MSFT ). The charges were brought to determine whether Microsoft's bundling of other programs into its operating system constituted monopolistic actions. The suit was brought following the browser wars that led to the collapse of Microsoft's top competitor, Netscape, which occurred when Microsoft began giving away its browser software for free. (To learn more, read Antitrust Defined.)

The case was plagued with problems, including questions about whether charges should have been brought against Microsoft in the first place. The argument proposed that if Microsoft was to be considered a monopoly, it was at best a non-coercive monopoly. People chose to run Microsoft Windows on their computers. With options like Unix, Linux and Macintosh, consumers demonstrated a preference for the convenience of Microsoft's Windows product. Windows may not have been the superior product, but it could run on a Toshiba laptop or on a Chinese clone. The ease of its installation allowed and its other bundled software to become the norm.

The government case accused Microsoft of making it difficult for consumers to install competing software on computers operated by Windows. If Microsoft was found to have made it unreasonably difficult for consumers to uninstall Internet Explorer and use a competing browser, the company's practices would be deemed anti-competitive. The case meandered along with accusations of misleading statements and all manner of courtroom distractions. Economists in support of Microsoft even published a full-page open letter to the U.S. president in major newspapers stating that antitrust laws hurt consumers as well as the success of domestic firms in global competition.

Despite the creative editing of videotapes, facts and emails, Microsoft lost. The ruling on April 3, 2000, called for Microsoft to divide the company in half, creating two companies that were to be called "baby bills". The operating system would would make up one half of the company and the software arm would make up the other. Before this could be achieved, however, the fangs were removed from the ruling during the appeals process. However, rather than being broken by the antitrust ruling, Microsoft saw its once invincible market share erode due to old-fashioned competition. As a result, many now wonder if bringing antitrust cases against non-coercive monopolies is merely a costly redundancy of work the free market can do at no charge.

(For more on this subject, read Monopolies: Corporate Triumph And Treachery.)

This question was answered by Andrew Beattie.

RELATED FAQS

  1. Why are oligopolies legal while monopolies are not?

    Learn about oligopolies and monopolies. Explore situations where anti-competitive practices have led to intervention by the ...
  2. What is price variance in cost accounting?

    Understand what price variance is in relation to cost accounting. Learn the most common way price variance arises and how ...
  3. Why would a company issue a rights offering?

    Understand more about a rights offering, and learn the most common reasons a company might have to issue a rights offering, ...
  4. What is the difference between share purchase rights and options?

    Discover the difference between share purchase rights and options, which are essential to understand when deciding to invest ...
RELATED TERMS
  1. Horizontal Merger

    A merger occurring between companies in the same industry. Horizontal ...
  2. Factor Market

    A marketplace for the services of a factor of production.
  3. Exchange Traded Derivative

    A financial instrument whose value is based on the value of another ...
  4. Catastrophe Equity Put (CatEPut)

    Catastrophe equity puts are used to ensure that insurance companies ...
  5. Open Trade Equity (OTE)

    Open trade equity (OTE) is the equity in an open futures contract.
  6. Bad Faith Insurance

    An insurance company’s appalling or malicious refusal to pay ...

You May Also Like

Related Articles
  1. Economics

    Why are oligopolies legal while monopolies ...

  2. Personal Finance

    Can Electric Cars Replace Gas Guzzlers?

  3. Personal Finance

    Will Tesla Cars Ever Be Affordable?

  4. Options & Futures

    Why Is Best Buy Stock So Volatile?

  5. Trading Strategies

    A Guide Of Option Trading Strategies ...

Trading Center