The real enemy – The true foe of free competition is not Microsoft but the EU bureaucrats attacking it in the name of competition

Article published in the National Post (Canada) on April 11, 2007.

Sales of Vista, Microsoft’s new operating system, appear to be exceeding forecasts. Meanwhile, Brussels is ramping up its test of strength with the software giant.

Sales of Vista, Microsoft’s new operating system, appear to be exceeding forecasts. Meanwhile, Brussels is ramping up its test of strength with the software giant.

Under the pretext of protecting competition, and following record fines of several hundred million euros and a requirement to disclose strategic information to its competitors, the European Commission is moving toward controls on the prices of this information. Although some competitors may gain, in reality these measures all go against the principle of free competition and against consumers.

Despite the additional time granted to Microsoft (the company now has until 23 April to respond to Brussels’s Statement of Objections), the commission’s readiness to influence the prices of interoperability interfaces embodies a number of perverse direct effects.

[*Mr. Petkantchin’s answers to a letter sent by Mr. Con Zymaris (CEO Cybersource, Director of Open Source Industry Australia and Convenor of Open Source Victoria-Australia, A Government-funded industry cluster) following the publication of this article. See bellow.*]

First of all, in a framework of free competition, it is consumers who end up deciding if a product or service is sufficiently innovative by choosing whether or not to buy it. In this particular instance, commission technocrats have taken it on themselves to decide that the information provided by Microsoft « does not contain significant innovations. » Letting the commission issue decrees in this matter does nothing to promote free competition.

Furthermore, with free competition relying inextricably on respect for the property rights of parties in the market and on free negotiation of prices, the commission is clearly on the attack here as well. After fabricating an artificial « market » in information on the interoperability of the Windows operating system, something that might certainly have remained a commercial secret, the commission is being drawn inescapably into seeking to control their prices as well.

But the real danger comes, indirectly, from an unrealistic vision of competition, based on market share, that pushed the commission into condemning Microsoft initially for « abuse of dominant position » in operating systems. It also accuses the company of using this « position » to attack other niches in the software market and hampering competition.

From an economic standpoint, the intensity of competition should not be measured by market share, as the commission has done. The fact that a company such as Microsoft equips the great majority of PCs around the world does not mean competition is somehow threatened or diminished.

Unless competitive entry is blocked by law, competition may come not only from existing operating systems but also from potential competitors joining the fray, drawn by the opportunity to serve consumers better and thereby make a profit.

Even if the market shares of competing operating systems are very low today, nothing stops consumers who find Windows unsatisfactory from turning to competing products. It is certainly feasible to opt for Apple’s operating system by buying one of its computers. It is also possible to put together one’s own computer, or have an independent professional do so, and equip it free of charge with the Linux operating system. Companies such as Red Hat or SUSE specialize in the sale of complete Linux-based packages, with extras such as technical assistance, enabling computers owned by businesses and individuals alike to run on Linux.

If there were truly a demand for options other than the Microsoft operating system, companies would not hesitate to specialize in meeting this demand. On the contrary, if Microsoft retains a « dominant position, » it is because it offers today’s best alternative in consumers’ eyes.

But competition can also come from new players. Although merely a potential constraint, this is just as real for Microsoft as the existence of direct competitors. For instance, what would prevent Intel, the number one maker of microprocessors, from competing against Microsoft in operating systems, just as Microsoft could one day decide to build its own computer from scratch – including a processor in competition with Intel – and to be the only firm selling machines running on Windows?

Contrary to what one may be inclined to think initially, this sort of competition may already be starting to emerge. For example, Red Hat and Intel just announced that they are linking up to help the latter’s reseller partners « with rapid entry into the expanding Linux marketplace with Red Hat’s comprehensive portfolio of solutions and new ways to provide their customers with more value ».

In this context, the antitrust authorities in Brussels – with their tendency to punish companies overwhelmingly favoured by consumers – may paradoxically stifle competition. Their policy can only induce Intel to hold back on moves to advance projects that challenge Microsoft’s « quasi-monopoly, » should the opportunity arise to provide greater consumer satisfaction. Does the commission not already have Intel in its sights because of another presumed « abuse of dominant position » with its 80% world market share in processors?

The commission’s relentless attitude toward Microsoft may artificially protect some current competitors, but not competition as such. When there are no legal barriers to entry, consumers can stand up on their own and choose the companies that best meet their needs. Microsoft is constantly subjected to the market test and must continuously win consumer confidence. Free competition needs to be protected, not against Microsoft but rather against Brussels.

Valentin Petkantchin, Institut économique Molinari