When does antitrust have effects? US v Microsoft

BRIEFING NOTE
U.S. v. Microsoft: Case Timing and Browser Market Shares

Source
Ennis, S. (2021) "US v. Microsoft: Where did the time go?" CCP Working Paper 21-05.

Executive Summary
This paper examines the US v. Microsoft antitrust case (1997-2002), focusing on the length of the litigation process and its relationship to the evolution of the Internet Explorer browser's market share. The main objective is to assess whether the slow pace of competition law enforcement had significant effects on the market, suggesting that although a decline in Internet Explorer's market share eventually occurred after the conclusion of the case, the long litigation period may have allowed Microsoft to establish a near-monopolistic position. The study thus raises crucial questions about the balance between the rigor of legal procedures and the risks of competitive harm due to delays.
Key words

US v. Microsoft Case
Temporal impact procedure
Browser market share
Slowness in competition law
Breaking point
Microsoft Case: Temporal Impact and Market Share

What is the topic?

The analysis focuses specifically on the length of the litigation and its potential market consequences, examining the evolution of Microsoft's Internet Explorer browser market share before, during, and after the litigation. The main objective is to assess whether the slow pace of competition law enforcement has had significant effects on market dynamics.

Why does this matter?

Important competition law cases can potentially fail to affect market structure until concluded. Such cases can also take a long time. Governments seeking speedier resolution of important matters may seek alternative methods, such as regulation. This research was extensively cited by the UK government’s impact analysis of proposed new legislation of digital markets, legislation that ultimately was passed into law as the Digital Markets, Competition and Consumers Act of 2024. (See DMU Impact Assessment by BEIS and DCMS, https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/1003915/DMU_Impact_Assessment.pd)f

Context: The Dilemma of Slow Application of Competition Law

The paper highlights a frequent criticism of the application of competition law, namely its slowness.

Slowness is a double-edged sword: * Negative consequences: Prolongation of illegal activities, entrenchment of market outcomes that are difficult to reverse, continued harm to competition, consumers and businesses. * Potentially positive consequences: Reduced risk of factual and evaluative errors, greater likelihood of establishing a good legal precedent.

The case US v. Microsoft is examined in a detailed case study to explore how the length of proceedings relates to market outcomes. The case is recognized as one of the major competition law cases. Unlike most such cases, it is particularly appropriate for external empirical analysis due to publicly available data for key variables related to the litigation, as well as extensive qualitative documentation about the origins and proceedings of the case.

The US v. Microsoft Case: A Pyrrhic Victory?

Analysis of the case reveals that it took more than six years between the receipt of the initial complaint by the Department of Justice (DOJ) and the end of the latest legal proceedings.

During this period, the market share of Microsoft's Internet Explorer browser increased dramatically, from less than 20% to over 90%.

The paper suggests that, from one perspective, this case could be considered a "Pyrrhic victory" for the DOJ, because by the time the proceedings concluded, Microsoft had already achieved a near-monopoly position in the browser market. However, in another sense, from the perspective of establishing precedent, the government might consider it a success.

Market Share Evolution and Business Timeline

The document details the timeline of key events in the case, from Netscape's initial complaint in August 1996 to the conclusion of legal proceedings in November 2002.

Milestones include the filing of the complaint alleging violation of the consent decree (October 1997), the filing of the main complaint (May 1998), Judge Jackson's decision finding Microsoft's monopoly power (November 1999), the spin-off order (June 2000, later reversed on appeal), and finally the settlement accepted by the court (November 2002).

The paper relates this timeline to the evolution of Internet Explorer's market share, which continued to increase throughout most of the proceedings.

After the settlement of the case, Internet Explorer's market share began to steadily and slowly decline.

Method: Breakpoint Analysis

The article uses time series analysis techniques to identify possible turning points in the trajectory of Internet Explorer's market share that could be linked to key stages of the case.

Five hypotheses are tested for when the direction of market share changed, corresponding to the filing of the initial complaint, the filing of the main complaint, the order of division, the cancellation of this order on appeal, and the conclusion of the procedure for approval of the settlement (Tunney Act).

Results

The results suggest that the most significant hypothesis in terms of explanatory power is the conclusion of the Tunney Act procedure (2002 T3).

An unconstrained analysis also identifies the fourth quarter of 2002 as the most likely break point, coinciding with the end of legal proceedings.

This breaking point is associated with a systematic decline in Internet Explorer's market share after that date, which could indicate the long-term effectiveness of competition law.

Implications

The paper notes the absence of a significant turning point before the conclusion of the case, even after the facts were established in 1999. This raises the question of whether companies actually adjust their fundamental strategies before the legal outcome is completely certain.

Although Microsoft's conduct was found to be illegal, the article notes that Microsoft did not charge for its browser, unlike Netscape, for its business customers, which may have led to lower overall costs for consumers in the short term.

However, Internet Explorer's increased market share potentially strengthened the market power of the Windows operating system, which could have had negative long-term consequences in terms of price.

The article points out that if the initial preliminary injunction had been upheld, Internet Explorer's market share would likely have grown more slowly during the period from the injunction's dismissal on appeal (June 1998) to the final settlement decision (November 2002), during which time market share increased from about 45% to over 90%.

Finally, the paper recalls the complexity of assessing the costs of delays in antitrust cases, emphasizing that a rapid resolution could also have negative consequences if the initially contested behavior is ultimately deemed legal.

Conclusion

The analysis suggests that the long duration of the US v. Microsoft case allowed the company to establish near-total dominance in the browser market before the restrictions imposed by the final settlement began to have an impact. Although Internet Explorer's market share ultimately declined after the conclusion of the case, the period of high dominance may have had lasting consequences for competition and innovation in the sector. The study highlights the challenge of effectively enforcing competition law in rapidly evolving markets and raises important questions about balancing the need for thorough litigation with the risks associated with slow justice. The identification of a tipping point in market share coinciding with the end of the proceedings suggests the long-term effectiveness of competition law, but also raises policy questions about how the market evolved during the protracted litigation period, suggesting that competition law might be ineffective during the period of enforcement.

Quotes:

"Antitrust law enforcement is sometimes criticized for taking too long to obtain results. On the one hand, slowness has potentially harmful consequences for market competition, consumers and business. On the other hand, fast outcomes are perhaps more likely to contain errors in fact and assessment and less likely to form good precedent."

"Based on the beginning date and end date of the US v Microsoft antitrust case, and the market shares of Microsoft's Internet Explorer browser before, during and after this period, we suggest that the Microsoft case was, in one respect, a Pyrrhic victory for the US Department of Justice (DOJ) Antitrust Division."

"Interestingly, though, a full examination of any costs from delay of reaching enforceable outcome should include the possibility that plaintiff's behavior could have been found legal and that early measures, such as an injunction to prevent certain behavior, might in general have costly market consequences of preventing legal outcomes should the behavior ultimately be found legal."


Paper Summary Initial Draft By NotebookLM