FTC/DoJ Sept. 26, 2007
- Asked to address monopolization, the conduct that leads to it,
and the conduct that accompanies it. Big order; could be, and
has been, a lifetime's work. Not sure I know what the
organizers are seeking, so please interrupt if I stray.
Recognize major cases of Handian monopolization (65 percent
plus) are rare. Will ignore the special case of attempted
- How monopolize? Several causes.
- Mergers. Should be prevented or combatted ex post.
Powerful legal mandates and precedents.
- Natural advantages: EoS, natural resources, network
externalities. Rare except in traditional regulated
industries or with narrow market definitions (e.g., some
pharma therapy classes).
- Superior efficiency, especially technical innovation.
Hardest cases, probably also the most prevalent now. The
sample of seven. We clearly should encourage tech.
superiority. How antitrust action affects incentives is
a complex question over which I must pass.
- Patent accumulation -- a subset. In my view, should be
(Cisco as a puzzle). Past cases in my sample of seven: GE, ATT.
- The pricing consequences of monopoly. Varied, depends upon
entry barriers. If low, how explain? The USS case -- worst
precedent of all. Inco behaved similarly, lost monopoly.
- Much more important than pricing: Are monopolists superior
innovators? Duality of theory; in small or slowly growing
markets, perhaps -- need to cover R&D costs. But after
scientific or technical breakthroughs, or with secure
monopolists reluctant to cannibalize existing rents,
monopolies are typically slow, deficient innovators. Intel as
a limited exception: "Only the paranoid survive." Microsoft
too. But clearly much to criticize on conduct of SO, GE,
AT&T, Xerox, IBM (fast second), Microsoft (same). See
separate notes, long paper. And combined with a fast second
strategy, discourage challengers. Judge Jackson in MS:
Most harmful of all is the message that Microsoft's
actions have conveyed to every enterprise with the
potential to innovate in the computer industry. Through
its conduct toward Netscape, IBM, Compaq, Intel, and
others, Microsoft has demonstrated that it will use its
prodigious market power and immense profits to harm any
firm that insists on pursuing initiatives that could
intensify competition against one of Microsoft's core
products. Microsoft's past success in hurting such
companies and stifling innovation deters investment in
technologies and businesses that exhibit the potential to
threaten Microsoft. The ultimate result is that some
innovations that would truly benefit consumers never
occur for the sole reason that they do not coincide with
- Intel too: the chart from Microsoft testimony, prepared for
FTC's Intel case.
- The superiority of open competition in inducing vigorous
innovation seems clear. The presumption of antitrust should
be to err on the side of maintaining competition and keeping
both conduct and structural barriers at minimum feasible
- This is hard. There is no way to evaluate such situations
without a careful rule of reason analysis guided by
appropriate economic theory. Natural experiments donít work;
the facts vary too much from case to case. But when monopoly
positions exist, the job can be done and should be done.
- I would be pleased to answer questions.