And When the European Commission Plays the Monopoly? Microsoft Case (Part I): Bundling 

April, 2006 -

Dominant companies have special responsibility to ensure that the way they do business doesn’t prevent competition on the merits and does not harm consumers and innovation», said European Competition Commissioner Mário Monti, regarding the Commission’s Microsoft decision dated March 24th, 2004.

The European Commission has considered that Microsoft Corporation has neglected the above mentioned special responsibility and levied a 497 million euros fine for abusing its near monopoly position in the personal computers (PC) operating system market, risking eliminating competition in the markets for work group server operating systems and for media players.

As far as the latter is concerned, the Commission concluded that Microsoft’s behavior consisting on tying or bundling its Windows Media Player (WMP) with its Windows operating system (which equips the majority of the worlds PC), (i) weakens competition on the media player market and (ii) harms consumer welfare.

In the light of the above, the Commission asserted that, by tying its WMP to Windows, the software giant will be empowered to control related markets in the media digital sector since it both (i) artificially reduces incentives of competitors that create programs for playing digital music and videos, acting as a brake on innovation; and (ii) causes prejudice to consumers, who ultimately end up with fewer choice and facing higher prices.

The purchase of the tied product - the WMP - should reflect what consumers want as opposed to what Microsoft imposes. Therefore, Microsoft has been ordered to avoid commercial, technological or business practices that would make the unbundled version of Windows appear less attractive or performing to consumer.

It seems clear that the final answer to the issues in discussion must grant the triumph of European policies regarding incentives to innovate in the industry and of the consumer’s welfare. However, a special attention should be given to the analysis of economic factors within the so called new technologies, as well as to its effects in the future.

The Commission’s decision holds no economic evidence that tying WMP with Windows has harmed consumer welfare. In addition, on a primary approach, it is possible to assert that savings regarding distribution and having the guarantee of compatibility between the two products may reduce its cost to consumers.

Microsoft’s case gives the opportunity to go deeper in analyzing the suitable degree of protection granted to competitors in the markets involved. In fact, one should ask whether it is really appropriate to dismiss consumer welfare in the name of preserving competition.

The merits of the 2004 decision are being reviewed by the European Court of First Instance, whose final decision will determine the relevancy of the use of traditional concepts of competition law (such as bundling, monopoly, among others) in software industry, in the same way they have been applied to sectors of the so called “traditional economy”.

The adoption of rules of conduct within the market of new technologies in the perspective stated by the European Commission may distort the logics of European competition policy since harming successful companies, not only reduces incentives to innovate, but finally, also prejudices consumer freedom of choice.

It is finally relevant to add that, as a result of the Commission’s remedy, Microsoft has in the meantime made available an unbundled version of Windows without the WMP software.

Microsoft is currently scheduled to stand in front of the European Court in Luxembourg between April 24 and 28. Until the present day, the facts concerning the respect of the un-tying remedy imposed by the Commission seem to indicate that the orders of the un-bundled version of Windows are insignificant. Available data shows that consumers still
prefer the tied version of WMP with Windows. We are looking forward for the Courts verdict…



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