Five myths about the dearth of competition in presence of “dominant firms”: The Microsoft example

Economic Note / May 2007

Anti-trust bodies impose fines or regularly penalise successful companies holding significant market shares in the name of an “abuse of dominant position.” Instead of favouring competition, such interventions are based upon myths, decrease market rivalry and distort in fine the market process. The Microsoft case is a good example of the pernicious role played by these myths in reallife competition.

A situation where one or few companies hold significant market shares – even if there are no legal obstacles for new competitors to join the fray – is considered systematically with suspicion, and as anti-competitive, by bureaucratic anti-trust bodies, like the Directorate General for Competition (DG Comp) of the European Commission.

But competition, as Friedrich Hayek – a Nobel Prize-winning economist – explained, is a process of rivalry through which individuals and firms compete with each other and through which prices, consumer needs, best technologies, business practices and innovations, are ultimately discovered on the market.