By Rachel Chalmers in Washington
MIT economics professor Franklin Fisher believes that Microsoft’s alleged monopoly in PC operating systems has harmed consumers, he told prosecutor David Boies in the Microsoft antitrust trial yesterday morning (Wednesday, June 2 1999). In Fisher’s first round of testimony under cross-examination by Microsoft attorney Michael Lacovara, Fisher said he did not believe consumers had yet been harmed by alleged predatory pricing for Internet Explorer. The media pounced on this comment and painted it as highly damaging to the government’s case (CI 3,575). Ever since Fisher was recalled, observers have been waiting for Boies to revisit the comment and place it in a context more favorable to the prosecution.
Boies opening was provided by an advertisement placed by the Microsoft-funded Independent Institute in the national dailies. The ad suggested that antitrust trials are not in the interests of consumers. Have consumers been injured? Boies asked Fisher flatly. Fisher said that consumers have indeed been harmed, because Microsoft’s monopoly limits consumer choice. Last time I was asked this question by Mr Lacovara, I was much misquoted, the professor noted dryly. That question was about pricing the browser at zero. While a predatory pricing campaign is going on, consumers are not directly injured. But in the long term, any predatory campaign injures competition and consumer choice is restricted.
To answer the specific claim made in the Independent Institute’s advertisement, Fisher explained that the point of antitrust policy is to prevent harm to competition. It is true that while we care about competition for the consumers’ sake, antitrust policy is not directly about consumers, he said carefully, that competition is good for consumers is the foundation of microeconomics, and therefore of (I would say) all economics – of, to be grand about it, Western capitalism itself. While competition alone is unable to solve such problems as air pollution, which require regulation, Fisher maintains that antitrust policy was drawn up to ensure that individual firms didn’t make those sorts of decisions for themselves. In general, any departure from pure competition is harmful to consumers, he said.
At this point the judge broke in to inquire whether OEMs might be considered to represent consumers, and Fisher confirmed that in these circumstances they can. When you have competition, the pursuit of private ends leads to public good, he said. The general proposition is that a failure of competition anywhere in the system leads to a situation which is not as good for consumers – whether that failure is in the consumer market or anywhere else in the chain. That’s true even when you can’t trace the direct connection, which here, of course, I think you can. So that by harming the PC manufacturers who sell to the consumer market, Microsoft’s alleged anti-competitive practices have directly harmed consumers by restricting choice.
To hammer the point home, Boies then asked whether Fisher believes that Microsoft has affected the pace of innovation. Oh, sure, Fisher said, Microsoft has made it absolutely clear that innovation is fine, and they will even assist it, as long as it’s complementary with their monopoly. Innovation that threatens Microsoft’s PC operating systems monopoly will be countered very aggressively indeed. Innovation will go in a direction Microsoft thinks is good for it. Playing devil’s advocate for a moment, Boies pointed out that while alleged predation is going on, lower prices will be offered – a benefit to consumers, even if only temporary. Fisher said: There is nothing wrong with low, profitable prices. That is what competition is supposed to achieve. But if prices are unprofitably low, they will lead to monopoly, which will mean that the pursuit of private ends no longer leads to the public good. With that, Boies handed his witness over for cross-examination.
