Never-ending story: Microsoft and EU competition policy

by Prof. Krešimir Žigić, CERGE-EI and Charles University of Prague

 

The banning of cartels and blocking of problematic mergers – and, where necessary, the imposition of large fines – are surely legitimate, indeed important, attributes of good competition enforcement. Interfering in the business strategies of a single firm, however, is a much more subtle and controversial thing to do.  The risks attached to the latter are well evident in the EU’s long-running legal contest with Microsoft. The EU Commission has recently sent a Statement of Objections to Microsoft expressing the view that Microsoft’s “tying” of its web browser Internet Explorer to its dominant client PC operating system Windows infringes the EC Treaty rules on abuse of a dominant position and allegedly “…harms competition between web browsers, undermines product innovation and ultimately reduces consumer choice.”

The evidence, however, shows just the opposite: Microsoft’s share of the browser market has been rapidly falling especially in Europe due to stiff and dynamic competition in the Europe’s browser market. According to Net Applications, a company that tracks the types of browsers used to visit Web sites, Microsoft's browser global share fell in 2008 under a 70%  for the first time since the company began monitoring browser market share*. In Europe, however, Microsoft's position became even weaker according to  XiTi,  another, internet metrics company. Thus, in November, 2008 Internet Explorer accounted for just under 60% of the European market, while Opera held around 5% and Firefox held slightly above 30%. Traditionally, Europeans seem to be much more likely than Americans to switch from Internet Explorer to an alternative. Just look at the rising popularity of the Firefox open-source browser (especially in France, Germany and some several eastern European countries). Earlier in the year 2008 (according to XiTi), Firefox's market share in some countries, including Finland, Poland and Slovenia, was approaching 50%. Also Apple’s Safari witness a resurgence thanks to the popularity of the Mac. Last but not the least, Google has entered the market last year with its Chrome browser. According to XiTi, both Chrome and Opera browser control larger shares in Europe than they do in the US. Chrome, for instance, ended November with a 1.1% share - while Opera, Europe's only native browser maker, owned a 5.1% share. A strategy that Google has been exploring for Chrome to capture a bigger share of the online audience for their browsers, was to pay PC makers to ship their software on new machines and set Chrome as the default browser.  At the same time, Microsoft has moved to adopt more open technology standards in general and in its own browser in particular. Thus with a more standards-based Internet Explorer, website operators will find it easier to make their sites work with all browsers, not just the Microsoft technology.  

This all is prime evidence that the browser business has become the focus of a new wave of innovation and competition and interfering in this natural and dynamic process does not seem to be a smart move at all. So whatever the EU proposed solution would be to this, it is likely to prove counterproductive. Much as in the case of the media player, one of the plausible bet is that the verdict would be again the same: besides a huge fine as if they discovered a large scale price fixing plot, EU Commission would request that Microsoft offers a version of Windows without Internet Explorer in Europe. Another remedy that, according to the recent rumor, the EU Commission might do is to order Microsoft to offer other browsers together with its own.

In any case it is hard to see any rationale for such measures and remedies given the fact that i) the browser is given for free, ii) Microsoft’s share of the browser market has been falling rapidly in Europe, and, last but not the least, iii) the original equipment manufacturers are free to install whatever browsers they wish when they ship PCs, or to set as default whatever browsers they want (including multiple browsers).

 For instance, requesting Microsoft to develop and market a version of Windows without Internet Explorer, would again step on company’s IPR to control its own trademark, effectively creating a compulsory licensing regime with all the known adverse consequences of it.  Needless to say, demand for the version of Windows without Internet Explorer will be practically zero throughout Europe (as was the case with the MS Office without Media Player)! 

The EU authorities do not seem to understand (or, perhaps, they do not want to understand) that the Internet Explorer functionality was designed as part of the operating system, and removing it would clearly harm consumers giving them a less capable product hampering the interaction between Windows and applications that are built to run on it. Since nowadays more and more innovations occur via feature integration, policymakers must not presume that product integration amounts to classical tying and so to per se violation of antitrust law. Thus EU Commission and Ms Kroes should have embraced an approach that considers the pro-consumer and pro-competitive effects of product integration. In other words, they should promote and not upset the natural process of competition in the dynamic markets. Much like the US antitrust, they should focus on consumers’ welfare, protections of consumers rather than on the protection of competitors and their market shares.

Source: AT Internet Institute (XiTi Monitor)

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