Friday, March 26, 2004

The best that can be said for the EU sanctions against Microsoft is that they probably won’t have a big impact on the company. The measures proposed by European anti-trust officials seem confusedly overzealous and restrained at the same time. While Microsoft is being fined over $600 million for a crime that doesn’t exist, officials set up regulatory roadblocks for Microsoft while simultaneously providing detours. The question then remains: What’s the point?

While the proposed sanctions won’t benefit European consumers, there is no evidence that European anti-trust chief Mario Monti was on an anti-American crusade when he devised them. His actions are generally consistent with Europe’s anachronistic regulatory traditions.

The fine Mr. Monti proposed is modest for Microsoft, which has about $50 billion in its corporate coffers. Mr. Monti also suggested two sets of requirements on the company. Microsoft can continue to bundle its Media Player — which allows users to play video clips, etc. — with its Windows operating system. But it must also offer Windows without the Media Player. Microsoft will be able to offer its Windows plus Media Player package for the same price as its unenhanced Windows product. It seems safe to predict that computer makers would tend to opt for the more complete package. Also, Mr. Monti has ordered Microsoft to divulge its software code to make its Windows software more compatible with other non-Microsoft servers.

Mr. Monti’s measures are geared to protect Microsoft’s competitors, not consumers. Economists are generally split on whether Microsoft’s market dominance stanches innovation, and it would be hard to make a definitive case either way. Meanwhile, the benefit consumers receive from having the Media Player wrapped into Windows is clear, and users can download other media players for free.

“It seems that the whole case has been about the five-minute inconvenience of a consumer to download an alternative player,” noted Nicholas Economides, a professor of economics at New York University’s Stern School of Business.

Also, Microsoft could begin facing stronger competition. For instance, the Linux operating system is emerging as a competitive challenge to Windows.

Mr. Monti’s curious remedies for Microsoft seem to reflect an ambivalence about their justification. When there is not a clear need for government interference in the marketplace, the better policy is to not interfere.

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