The European Union’s highly politicized business environment increasingly threatens competitiveness and consumer welfare across the continent.
Monday, the Court of First Instance upheld a $689 million USD antitrust fine imposed against Microsoft by the European Commission. It’s the largest fine ever.
The Commission has long derided Microsoft’s business practices like bundling Media Player with Windows, despite the runaway success of rival downloadable multimedia software, and the periodic need to download updates of Media Player itself.
The Commission also detests Microsoft’s exercising control over its own server software, preferring a compulsory licensing regime designed to placate competitors instead.
Buckling to competitors is one thing, but this decision represents a heightening of bureaucratic arrogance. Today’s ruling, observing the “gravity” of Microsoft’s offenses, actually stated: “Microsoft’s argument that it will have less incentive to develop a given technology if it is required to make that technology available to its competitors is of no relevance.”
Really? Forget Microsoft for a second — imagine the implications of this mindset for tomorrow’s innovators.
Sidetracking businesses away from improving products, forcing them into years-long battles for supremacy in expensive antitrust courtroom clashes only hurts consumers, businesses, and competition. Winners are bureaucrats who see their influence increase.
We know from Adam Smith that a government that refuses to take sides in disputes between competing private parties generates more prosperity for all. Even Microsoft’s rivals ultimately will pay: they are more vulnerable to official predation from ever-larger government that they helped create.
EU antitrust enforcers insist Microsoft stymied competition in audio and video players by bundling its Media Player software with Windows operating system — never mind the wide, and free, availability of RealPlayer, Quicktime, and Yahoo! Music Juke Box. Other competitive alternatives of course are non-PC-based digital audio and video players like iPods, CD and DVD players, the new iPhone and more. These competing inventions and new ones on the horizon were sufficient to guarantee perpetual competition, everything else has been a drain.
Microsoft is also being attacked for not "sharing" code for its server software to the satisfaction of competitors and regulators. But court-ordered, compulsory business models mean less competition. We already have a competing “open source” code approach to server software and many other products.
European consumers enjoy many new choices thanks to Microsoft and the competitive responses to it over the years. But EU antitrust bureaucrats behave almost as if consumers would have been better off if Microsoft had never entered the market. Yet the option of not choosing Microsoft has always been available. It still is. With the rise of handhelds and of the popularity of Google’s efforts to offer Internet versions of practically everything Microsoft offers, one could be forgiven for wondering if the days of the desktop were numbered.
This case is one of today’s dominant examples of global antitrust regulation’s incoherency; the whole enterprise is ripe for exploitation. What price or behavior qualifies as acceptable is always open to official second-guessing. This arbitrary regulatory environment harms successful firms, and offers a slick political alternative to competition for failing ones. When competition for consumers becomes too hard, competing for government favor will often serve. Indeed, good lawyers may be cheaper than great software engineers.
The only predictable aspect of this Court decision is that future enforcement will be directed at successful, profitable firms that rise above the fray. But the impact of that stance on wealth creation in the European Union is incalculable. There is no better way to destroy competition than to target those who, well, compete.
Incentives matter. Punishing a firm for being innovative and profitable will dampen such activity in the future. And it’s hard to imagine that the commission will put the Microsoft fine — and future extractions — to better use than Microsoft would have in research and new product development. An activist antitrust regime is no way to attract business investment.
Global business competition is good for consumers, but it needs to be competition in wealth creation, not bureaucracy building. For a long time, American enforcers committed some of the world’s most onerous, antiquated, and wrong-headed antitrust interventions; indeed, they still engage in plenty ridiculous pursuits. But in this area, at least, the EU seems committed to vaulting way ahead.
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