Law Office Computing
January 1999
Winton Woods
What Makes A Monopoly?
In my basic economics course, back in the 50's, I was told that a monopolist was a person or entity who had the power to exact what was called a ‘monopoly price' for the product in the market that was monopolized. If I was the only manufacturer of widgets in the world, I could charge whatever I wanted for them. So long as the world continued to want widgets my monopolist price would result in profits to me that came not from my skill or competitive ability but from my position as a monopolist. That was what we learned in the 50's. Later, when I got to law school, I learned that the Antitrust laws had been written and developed in order to maintain competition in markets and prevent the exaction of monopoly profits. But I also learned that being a monopoly per se, while perhaps wrong in some moral sense, was not illegal. What was illegal was the misuse of that monopoly power. Thus, we were introduced to the intricacies of the doctrine of monopolization which is what Microsoft Corporation is being charged with in the current high-profile lawsuit. In other words, did Microsoft abuse its monopoly in desktop operating systems by attempting to use the leverage that it gained there to exclude competitors, primarily competitors in the Internet browser market place? Really what that means is did Microsoft misuse its monopoly power to damage and restrict the competitiveness of Netscape Communications Co.? What Microsoft did was to keep building a better browser which it integrated into its Windows desktops operating system as a part of its continuing effort to allow its operating system to directly access the rich and varied resources of the Internet. The answer to that question will not come for years. Indeed, the ultimate answer will probably come from the United States Supreme Court. The United States Supreme Court will be asked to determine the applicability of laws developed in the early part of the 20th Century to the commercial, technological, and entrepreneurial realities of the 21st Century. At the core of the Court's decision will be a concept that is new to our consciousness and yet familiar to every one of us. That concept is "Internet time" which is used to identify the warp speed with which CSEA changes occur in the information technology industry. Here, we are not talking about just the rapidity of technological development such as that embodied in "Moores Law" which describes the geometric increases in processor speed, net drive the success of companies such as Intel and IBM. Structural changes within the information technology industry itself are occurring in Internet time as is illustrated by two major information technology industry reconfiguration that occurred in the closing months of 1998. The first of these, the MCI WorldCom merger created not just a major and potentially dominating player in the telecommunications field. Implicit in the announcements that came from the new company is a dedication to solving the so-called ‘last mile' problem which will bring high-speed Internet access services to the masses. High-speed Internet access in turn will drive massive and rapid changes in the way in which the Internet is used to deliver information, products, and services over the Internet. Those changes will come fast and furious as the Internet becomes the single most important economic force of our time.
An equally compelling and potentially more revolutionary event occurred in Internet time shortly after the stunning announcement of the MCI WorldCom deal. The merger of America Online Netscape Communications and Sun, this merger has the potential of causing the kind of radical reformation of the technological basis of the information technology industry that justifies the often misused phrase "paradigm shift." The new company will have the immediate power to build the capacity to utilize the Internet as a viable alternative to the desktop operating system paradigm that has been created and monopolized by Microsoft. Again, because the shift away from the desktop operating system to the use of the Internet to delivery information technology services is occurring in Internet time it seems likely that by the time the Microsoft issue reaches the US Supreme Court that the information technology industry will be so radically restructured that the Microsoft Windows desktop operating system will be an anachronism. Microsoft is well aware of that and its response is, at the moment, to develop and expand its technology at the local area network and wide area network level. It has placed tremendous resources in the development of so-called "thin client" technology which minimizes if not dispenses with the importance of the Windows operating system. But Microsoft is far behind in regard to the Internet-based deployment of information technology resources. The America Online-Netscape-Sun alliance is in fact far ahead of Microsoft in that area and while Microsoft may be the richest corporation in America at the moment, the new alliance has the resources both intellectual and financial to prevent Microsoft from achieving dominance in the Internet-based direct delivery of IT resources field. But as this new paradigm is emerging in Internet time there are growing in the background new technologies of which we can be only dimly aware. There is every reason to believe that the emergence of these new technologies and the reality of the America Online-Netscape-Sun ability to develop direct delivery of IT resources over the Internet will render the current Microsoft operating system monopoly as irrelevant thus forcing the company to reinvent itself to stay alive as a functioning entity. That is what IBM was forced to do in the early ‘90's and what has emerged is a much more powerful and creative, positive economic force than existed when the Justice Department's ill-fated attack upon "Big Blue" began.
Because all of these changes will occur in Internet time the Supreme Court will be required to redefine the applicability of the Antitrust laws and institutions to a dynamic, ever-changing industry that could not have been conceived of during the domination of the Standard Oil Trust of the 1920's. Indeed, it seems likely that the Court will look at the information technology industry as the most compelling example of the ability of competition and innovation to render monopoly impotent.