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Re: Monopoly and regulation: Microsoft




Sanjeev:  I find your message regarding monopoly and competition a
little confusing.   I hope the intention is not to win an argument
(like the minimum wage issue) purely based on economic theory, skewed
surveys, and rhetorical statements from nobel prize heavy weights.  
I do not know what the purpose is of citing the Business Week survey. 
It is obviously skewed and does not catch my attention at all.  Are we
just to reflect the view of the Wall Street or is the intent to
reflect the view of the Main street?

Regarding economic theory:  We have already gone over that before.  I
thought we had a consensus that economic theory alone cannot provide
us with complete, humane and commonsensical answers.  Therefore, I do
not understand why the red herring again at this point?

That brings us to quoting the heavy weights: "Stigler the Nobel Prize
winner who died a few years ago, Becker states,  "The way to prevent
monopolistic practices, he believed, is to encourage domestic and
foreign competition rather than through detailed regulation  of
business by the Justice Department." Becker himself won the Nobel
prize in 1992 for his work, on one thread of which I am carrying
forward in my  dissertation (family economics)."       

I have nothing against Becker, I am sure he is a renowed economist. 
But the above statement is no more than generalized rhetoric.  Let us
examine it.  First question:   In what way has the justice department
prevented domestic and foreign competition?  Give us current or past
examples please.

You go on "  The key problem that Stigler discovered  was that
"instead of a single-minded devotion to improving competition, 
regulators responded to pressures to attack or defend 'big' business,
to  protect small companies, and to appeals from political
constituencies."

Again a very generalized statement -- rhetoric, that's all.  Give us
examples please where this has happened. Yes, people who respond to
such pressure are the politicians.  But their queries and committe
hearing have no "regulatory" bearing.    

The issue is of arbitrariness and not how much regulation.   There
should be no arbitrariness in the system.  The government must have a
valid case.   Once you have those restraints in place, the system
works as it has in the  U.S.   

What is at issue here??  Existense of monopolies is not the issue? 
MONOPOLIES IN THEMSELVES ARE NOT ILLEGAL. THE JUSTICE DEPARTMENT OR
THE FTC (FEDERAL TRADE COMMISSION) HAS NO AUTHORITY TO DISMANTLE A
MONOPOLY.
The issue is what do you do when a company uses its market dominance
to raise the barrier of entry for competitors and would-be
competitors?  FORGET THE GOVERNMENT.   What should we do as people?? 
WHAT ABOUT THE POEPLES RIGHTS TO GET DIVERSE PRODUCTS AND SERVICES??   
I think we have a fundamental difference here.  You say that the
"market" eventually will correct itself.  I AM SORRY BUT THAT PREMISE
IS FALSE.  IF YOU CAN PROVE THAT PREMISE, YOU TOO WILL WIN THE NOBEL
PRIZE!! AND I AM SERIOUS.  

I think the courts in United States have excellent comments on what we
call as illegal monopolistic practices.  I will repeat again, the
government cannot prevent monopolies per se.  But should we just sit
and watch if a particular player uses its market position to keep
competition out and making things difficult for competitors.  I think
there is a consensus in United States that such tactics are bad FOR
THE PEOPLE AS WELL AS FOR BUSINESS.  I cannot quote Nobel Laureates
but let me quote some eminent judges.  Sorry, if this becomes long. 
But this is a fundamental issue we discussing here.

The Case Against Microsoft

(borrowed from Dan Check:)
"The question before the FTC, and then the DOJ, was whether or not
Microsoft had a monopoly in PC OS market, and whether or not their
pricing practices were anticompetitive. In United States v. E.I. du
Pont de Nemours and Company,5 the Supreme Court defined monopoly power
as the &quotpower to control prices or exclude competition."6 In other
words, a monopolist is a company that can significantly raise the
barriers to entry within the relevant market.

The most important doctrine in prosecuting Microsoft was set forth in
United States v. Griffith,7 which states that a monopolist may not use
a monopoly in one field as leverage to gain a monopoly in another. The
Griffith case had to do with movie theaters.
Griffith used its monopoly status in small towns (where they owned the
only theater) to get better contracts from motion picture
companies.......
 What Griffith did was anticompetitive because Griffith used monopoly
power in small towns as a lever to gain market share in competitive
cities. 

In United States v. Grinnell Corporation,8 the Supreme Court
introduced a test for finding whether or not a monopolist was indeed
unlawfully using monopoly power: 

     "(1) the possession of monopoly power in the relevant market and
(2) the willful acquisition or maintenance of that power as
distinguished from growth or development as the consequence of a
superior product, business acumen, or historic accident."9

What this means, in effect, is that monopolization is not illegal, but
use of monopoly power is. This position was further developed in Telex
Corporation v. International Business Machines Corporation.10 In this
case, the court recognized that a monopolist may use practices that
any company, regardless of size, could legally employ.11 A monopolist
cannot, however, use his market power in such a way so as to prevent
competition.12 Basically, a company is allowed to be a monopoly as
defined in du Pont, but when a monopolist acts in a way that only a
monopolist can (as defined in the second test in Grinnell), the
monopolist has broken
the law.

It should be noted, though, that the use of "superior product" in the
Grinnell decision is fairly dubious. In Berkey Photo, Incorporated v.
Eastman Kodak Company,13 a lower federal court stated: 
The only question that can be answered is whether there is sufficient
demand for a particular product to make  its production worthwhile,
and the response, so long as the free choice of the consumers is
preserved, can only be inferred from the reaction of the market."14

In the case of Microsoft's pricing policy, the DOJ, were it to go to
court, would have to prove Microsoft's monopoly power in the field of
OSs, and then subsequently prove that their pricing policy was
anticompetitive. Proving that Microsoft has a monopoly in the field of
OSs would not be hard, and should the DOJ ever go to court with
Microsoft, it will have to prove Microsoft's monopoly power. If the
DOJ decided to litigate, proving that Microsoft's pricing practices
were anticompetitive would not have been hard, either.

The same evidence that is used to prove that Microsoft has a monopoly
could also be subsequently used to prove that they are in violation of
section 2 of the Sherman Antitrust Act under the tests set forth in
Grinnell and the doctrine set forth in Telex. Under the Grinnell test,
Microsoft fits into the first category, in that it has monopoly power,
and fits into the second, as well, in that it maintains that power not
through superior product or business acumen, but through
anticompetitive pricing policies that limit the
choices of consumers. "   
(To read this full brief go to Yahoo/government/busineslaw/microsoft)

REMEMBER THAT THE BURDEN OF PROOF IS THE GOVERNMENT'S. AND IT IS NOT
EASY TO PROVE MONOPOLISTIC PRACTICES IN A COURT OF LAW.

I think we better not make that assumption that government has
arbitrary regulatory powers.   Every regulatory Agency in the United
States KNOWS that there are limits to their authority. WHICH IS A
BASIC DEMOCRATIC PRINCIPLE. Compare this to India where even a clerk
thinks that there are NO LIMITS to his/her authority, let alone high
ranking officers and politicians.   Once you take that arbitrary
authority away, bring in accountability, and a strong independent
judiciary, things will work.  However, it is a fallacy to assume that
in every situation markets can correct themselves or that government
acts because of politics. Government has a duty to protect the
consumer.  At least that is the mission of the FTC in this country. In
cases after cases FTC has done an excellent job.
I THEREFORE CANNOT UNDERSTAND WHY ARE YOU MAKING THE ASSUMPTION THAT
ALL POWER IS ABSOLUTE.  ATLEAST THAT IS NOT THE CASE IN THE US
GOVERNMENT.  THE ONLY PERSON THAT COMES CLOSE TO ABSOLUTE POWER IS THE
INDEPENDENT COUNSEL.  BUT EVEN HE HAS TO ANSWER TO A COURT AND
ULTIMATELY TO THE CONGRESS.  PLEASE GIVE US SPECIFIC, RECENT EXAMPLES
OF ABSOLUTE POWER.

The other part of your statement that human being cannot be trusted is
true.  That is why we have the system of division of powers and rule
by law.  That no man could be trusted was why the American system of
division of powers came into being.   And that is what I have been
saying through out: that it is the system which keeps people in
government(AND FOR THAT MATTER ANY ORGANIZATION) honest.   I fully
believe that such systems can be put in place in India.

I have a lot more to say, but for now this should suffice.   Regards
to all,

Kush Khatri.
> 

Sanjeev Sabhlok  wrote:
>
> While I have no objection in principle to a regulated form of
capitalism,
> we must try to understand that on this aspect too, there are levels of
> regulation, and we must strive to specify a democratic and minimal
level
> of regulation.
> 
> Case in Point: Microsoft.
> 
> In the 11th May issue of the Business Week, the results of a survey
have
> been published. In that survey, readers were asked about whether the
> government should do nothing about Microsoft, regulate it, or break
it up.
> The response (out of over 5,000 who responded):
> 
> Do nothing:  67%
> Regulate:    22%
> Break it up: 11%
> 
> A simple letter to the editor by one reader summarized this verdict:
"If
> you let the marketplace decide, it will. We don't need the Justice
> Department to decide for us." 
> 
> Reverting to the same topic from a highly theoretical perspective, I
quote
> from Gary Becker's "The Economics of Life", page 309: Talking about
George
> Stigler the Nobel Prize winner who died a few years ago, Becker
states,
> "The way to prevent monopolistic practices, he believed, is to
encourage
> domestic and foreign competition rather than through detailed
regulation
> of business by the Justice Department." Becker himself won the Nobel
prize
> in 1992 for his work, on one thread of which I am carrying forward
in my
> dissertation (family economics).  The key problem that Stigler
discovered
> was that "instead of a single-minded devotion to improving
competition,
> regulators responded to pressures to attack or defend 'big'
business, to
> protect small companies, and to appeals from political
constituencies."
> 
> Again, one of the critical problems comes at the level of
> **implementation** of these regulatory objectives. You do not find
such
> "perfectly" objective and "welfare-oriented" human beings to man any
> government position, anywhere in the world. **All** human beings are
> greedy (want more of what they value than less), want their personal
gain
> more than social gain (that is why we have so few people
participating in
> politics in India and everyone leaving India for the USA), and are
> opportunisitic (will cheat if given the opportunity). I have, in my
> extensive experience in government, not seen any saint, so far
[there are
> of course a few misguided folks who think that their being good can
solve
> India's problems]. 
> 
> I do not feel comfortable giving anyone an absolute power to decide to
> regulate me. Therefore if necessary we must incorporate the concept of
> "true" referenda based on a random sample of the population, in
order to
> decide upon the fate of a Microsoft in India. I use the quotes around
> "true" since I very seriously distrust any governmentally organized
> referendum. If we are to go by such referenda then these must be
organized
> by fully private parties who have a stake in honest methods, such as
the
> Gallup in the Western world. 
> 
> Given such a fair mechanism, I would much rather have the views of
10,000
> randomly selected people as the basis of a decision than trust any
other
> human, high or low, to decide any public issue himself or herself.
Human
> beings are so strongly affected by their personal biases, particularly
> jealousy of "big" entrepreneurs, that they cannot be trusted, in
> isolation, to decide upon the best mode of regulation. 
> 
> Today, for example, if the Justice Department in the USA goes against
> Microsoft then that would be the most anti-democratic thing to do,
> irrespective of its "intentions." 
> 
> I would hate to have a Microsoft in India snuffed out by a bunch of
> ideological decision-makers. Therefore, I would support:
> 
> a) regulation rather than direct control (i.e., complete
privatization) 
> b) minimal regulation by a completely democratic process 
> c) use of well-researched economic criteria to determine if
"concentration 
> of power" has been achieved, prima facie, in a particular industry. 
> 
> As I write this, I must admit that I was very happy to find my views
> supported by a vast majority of Americans, given the rather strong
views
> against Microsoft that Kush holds. These Americans are no jokers. 
They
> have fought for their freedom from all kinds of governmental
intervention
> for two hundred years now, and they will not let any bunch of
> "well-meaning" Justice Department officials interrupt the process of
> market-determined outcomes (remember: the market is the most
democratic,
> since **each** individual, by his or her buying and selling decision,
> determines which industry ought to exist and which ought to close
down).
> 
> The USA is not yet a country where pure capitalism flourishes, but it
> comes closest to it, by any yardstick. People are convinced here, that
> government interference is a violation of their fundamental human
right to
> decide themselves about each cause. If Microsoft is really bad, I
can buy
> Apple, or I can buy WordPerfect. I don't want to be told by anyone
about
> what I must buy or not buy. In India this strong arrogance of each
> individual has not yet developed enough. We are subservient to the
> government and want IAS officers like me to decide for the people.
Do you
> trust me to decide for you? If not that is a good sign. People need to
> trust in themselves, first, and not anyone else, whether elected or
> appointed.
> 
> One reader rightly said in the Business Week: If Microsoft was so
bad then
> why do the government officials in USA not stop buying those
products and
> switch to others (Corel's Microsoft package, for instance, or to
Apple,
> for instance)? The truth is that Microsoft has become so big not
because
> of "monopolistic" behavior but because its competitors were unable to
> produce a better package of goods at the right time. The price of
these
> packages is irrelevant. What does a business care about a few hundred
> dollars for software, when its hardware costs run into the thousands
of
> dollars? What it is looking for is a simple, well supported system
that
> can run other software and is easy for others to use.
> 
> Today there is so much positive anticipation for Windows 98. Where
are IBM
> and others, why is there nothing being offered by them at all? To
use the
> absence of a competitive spirit from other competitors to attack
Microsoft
> (which is at least doing something), is to attack India_policy for its
> failings [such as: how will you implement this Manifesto, how
realistic is
> this, how beautiful a document but of what use, etc.]. At least we are
> doing something. No one else in India is willing to assemble a
document
> like what we are trying to do. So should we say we are a "monopoly"
and
> shut down our shop?
> 
> Anyhow, I do not wish to drag on this issue. I am not defending or
> attacking Microsoft. I care the least for Microsoft or Bill Gates.
Just
> using this as a point to illustrate the importance of democratic
methods
> of decision making. This democracy can of course be much benefited
if our
> population is fully literate. So, let us focus on that, too. 
> 
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