The Economics of the Microsoft Case

Abstract

This paper explains the economics of Microsoft's anticompetitive actions, both the goal of suppressing Schumpeterian competition and the methods of denying widespread distribution to innovative new technologies. An understanding of the economics of the industry supports the logic of the government's antitrust case against Microsoft. Competition in the short run is limited by the network effects surrounding products like Microsoft Windows. Competition in the long run is far more feasible, but not automatic. The purpose of Microsoft's anticompetitive actions was to prevent widespread distribution of innovative technologies whose market success would have fostered long run competition. With that analysis in hand, this paper examines the effects of Microsoft's anticompetitive acts on the industry to determine whether and how the suppression was harmful to users of computers.