MS/DOJ: Judge vexed by Microsoft debate

In its antitrust trial yesterday, Microsoft's attempt to show that competitors faced few barriers to entry into the operating system market was closely scrutinised - and questioned - by the judge.

In its antitrust trial yesterday, Microsoft's attempt to show that competitors faced few barriers to entry into the operating system market was closely scrutinised by the judge.

After Microsoft attorney Michael Lacovara walked economist Richard Schmalensee through testimony designed to show the company faced competition on a number of fronts, the conversation got away from the lawyer.

When the topic turned to whether barriers of entry into a market needed to exist to prove a monopoly, Schmalensee, dean of the Sloan School of Management at Massachusetts Institute of Technology, said that indeed was the case.

Schmalensee argued that Microsoft had not created barriers of entry to the OS market.

But when he used an analogy to a grocery store to make a distinction between barrier of entry and cost of entry, Judge Thomas Penfield Jackson began peppering the witness with questions.

“The grocery store analogy doesn’t help me,” he said.

Schmalensee attempted to explain that in order to compete in the grocery store business one has to build a grocery store. He said that was a cost of entry. Schmalensee went on, saying a grocery store in a small town without much room for a competitor could pose a problem, but if the market is not blocked a competitor could emerge.

But the judge turned the point around, focusing not on the size of the town but on the fact there is only one town to compete in.

“The cyberworld is akin to a very, very large town,” the judge replied. “If you have a benevolent despot…you have a monopoly.”

Lacovara then tried to steer the conversation back on track, asking Schmalensee whether it would be a predatory move if the town’s single grocery store tried to improve itself.

“I thought we were talking about barriers to entry not predatory practices,” the judge said to Lacovara.

Eventually, Lacovara made his point that Microsoft did not block entry into the OS market.

Government attorney David Boies later questioned that conclusion. “Witness after witness in this case have said that barriers did exist.”

Schmalensee said the only barrier of entry argument the government has made is one dealing with the ability of competitors to attract application developers.

“Microsoft has lots of quality programs for its OS and that is an advantage, but it’s not an application programming barrier,” the economist said.

Competing platforms must attract developers by providing good development tools and involving them in improving the platform, Schmalensee said. Microsoft’s investment in that strategy only presents a cost of entry, not a barrier of entry, to would-be competitors, he added.

Lacovara is expected to end his questioning tomorrow morning. In the afternoon Schmalensee, the last of Microsoft’s three rebuttal witnesses, will be cross-examined by Boies.

The case is expected to end Thursday. Judge Jackson has said he will allow each side 30 days from the end of the rebuttal case to draft findings of fact and separate points of law.

(Fontana is a senior editor at Network World.)

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