Transcript Standard Setting in High

Class 24
Antitrust, Fall, 2015
Microsoft in the EU
Randal C. Picker
James Parker Hall Distinguished Service Professor of Law
The Law School
The University of Chicago
773.702.0864/[email protected]
Copyright © 2000-15 Randal C. Picker. All Rights Reserved.
Article 101 [81]

1. The following shall be prohibited as
incompatible with the common market:
all
agreements between undertakings, decisions
by associations of undertakings and concerted
practices which may affect trade between Member
States and which have as their object or effect the
prevention, restriction or distortion of competition
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Article 101 [81]
within
the common market, and in particular those
which:
 (a) directly or indirectly fix purchase or selling
prices or any other trading conditions;
 (b) limit or control production, markets, technical
development, or investment;
 (c) share markets or sources of supply;
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Article 101 [81]
 (d)
apply dissimilar conditions to equivalent
transactions with other trading parties, thereby
placing them at a competitive disadvantage;
 (e) make the conclusion of contracts subject to
acceptance by the other parties of
supplementary obligations which, by their nature
or according to commercial usage, have no
connection with the subject of such contracts.
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Article 101 [81]

2. Any agreements or decisions prohibited
pursuant to this Article shall be automatically
void.
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Article 101 [81]

3. The provisions of paragraph 1 may,
however, be declared inapplicable in the case
of:
any
agreement or category of agreements
between undertakings;
any decision or category of decisions by
associations of undertakings;
any concerted practice or category of concerted
practices,
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Article 101 [81]

which contributes to improving the production
or distribution of goods or to promoting
technical or economic progress, while allowing
consumers a fair share of the resulting benefit,
and which does not:
(a)
impose on the undertakings concerned
restrictions which are not indispensable to the
attainment of these objectives;
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Article 101 [81]
(b)
afford such undertakings the possibility of
eliminating competition in respect of a substantial
part of the products in question.
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Article 102 [82]

Any abuse by one or more undertakings of
a dominant position within the common
market or in a substantial part of it shall be
prohibited as incompatible with the
common market insofar as it may affect
trade between Member States.
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Article 102 [82]

Such abuse may, in particular, consist in:
(a)
directly or indirectly imposing unfair purchase
or selling prices or other unfair trading conditions;
(b) limiting production, markets or technical
development to the prejudice of consumers;
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Article 102 [82]
(c)
applying dissimilar conditions to equivalent
transactions with other trading parties, thereby
placing them at a competitive disadvantage;
(d) making the conclusion of contracts subject to
acceptance by the other parties of supplementary
obligations which, by their nature or according to
commercial usage, have no connection with the
subject of such contracts.
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Developers
Developers
Navigator and Java
W OS
M OS
Consumers
Consumers
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Microsoft, facing
competitive
entry, made
design choices
re IE to foreclose
Netscape
Monopoly Maintenance and Middleware
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Developers
W OS
Publishers &
Advertisers
Browser
In a two-sided market,
tying can be closer to
pure leveraging of the
platform as to a different
customer base on one
side of the market
Consumers
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OS Extension & Tying in Two-Sided Markets
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Publishers &
Advertisers
Music Cos
Developers
Media
Player
W OS
Browser
Consumers
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Platform tying as
one-sided leveraging
OS Extension & Tying in Two-Sided Markets
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Zero Marginal Cost Goods
“Wasted” unwanted pieces of the bundle
don’t matter
 Compare Windows and the Fruit Basket

With
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MC > 0
 I value the right fruit at $5, the wrong fruit at $0
 Each piece of fruit costs $1 to produce
 Try selling a basket of {apple, orange, banana,
pear, grapefruit, lemon}
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Zero MC Kills Off Natural Limits
on Product Scope

No extra marginal cost to adding to the
scope of the product
Compare

the fruit basket
Need not really identify what the consumer
wants particularly precisely
Broadside
of the barn: let the consumer figure it
out
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Arbitrariness in the Product
Definition

Question
Why
does Microsoft have three monopolies
(Windows, Office and Internet Explorer)?

Answer
Because
it chooses not to have just one
Think Microsoft AllEncompassing: an “integrated”
version of Windows, Office and IE
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Put Differently

Don’t Ask
“Why

does Microsoft bundle so much?”
Ask Instead
“Why
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does Microsoft bundle so little?”
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Does Microsoft Tie in Violation of
82(d)?

82(d)
Such
abuse may, in particular, consist in: … (d)
making the conclusion of contracts subject to
acceptance by the other parties of supplementary
obligations which, by their nature or according to
commercial usage, have no connection with the
subject of such contracts
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Tying Test in the EU

Four Parts (¶ 842)
1:
Two separate products
2: Dominance in tying product market
3: Customers do not have the choice to acquire
the tying product without the tied product
4: Forecloses competition
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As to Windows and WMP

2 and 3 Not Really in Question
Microsoft
concedes dominant position in PC OS
market (¶ 854)
Microsoft had not been selling a version of
Windows without WMP

1 and 4 are in Issue
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Are Windows and WMP Separate
Products?

Relevant Evidence
Some
consumers, mainly businesses, want the
OS without a media player
In other cases, consumers want a media player
but want to choose one
MS has distributed version of WMP for other
operating systems
WMP can be downloaded separately
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Are Windows and WMP Separate
Products?

Very similar to our discussion of Jefferson
Parish
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Fourth Factor: Foreclosing
Competition

Try five distributional strategies
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Windows and Media Players

Try Five Approaches
1:
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Choosing the Best One
 Microsoft believes that it should distribute a
media player with Windows
 It doesn’t have one of its own, so it looks at all of
the existing media players and chooses the best
one to be distributed on the Windows CD
 RealPlayer is chosen and is distributed
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Windows and Media Players
2:
Auction
 Microsoft believes that it should distribute a
media player with Windows
 It doesn’t have one of its own, so it announces
that it will auction off the right to be distributed
on the Windows CD to the highest bidder
 RealPlayer wins, pays and is distributed
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Windows and Media Players
3:
MS Distributes Its Own
 Same as above, except instead of choosing a
third party player or auctioning off the
distribution right, MS builds its own—call it
NetShow—and includes that on the Windows
CD
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Windows and Media Players
4:
MS Bundles WMP
 MS ensures that Windows Media Player is
automatically installed as part of Windows;
OEMs are prevented, by contract and by
technology, from removing access, though
OEMs and consumers can install other media
players
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Windows and Media Players
5:
Neutral Windows
 MS offers a version of Windows without WMP
and one with for the same price
 OEMs or consumers and can choose either one
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Fourth Factor and the CFI

Before the Commission’s Remedy was
Implemented
Ubiquitous
distribution of WMP with Windows
Other media players could only compete for
second install position, could never compete to be
exclusive
Multiple media players creates confusion and
raises support costs for some buyers
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Remedies in the US

Present but Invisible
Makes
it possible for OEMs to hide means of
access to WMP
Still present and third parties know that
Should be competitive advantage against Real
and others as content creators know WMP will be
present even if temporarily invisible
No price change
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Remedies in the EU

With and Without Versions
Requires
Microsoft to offer OEMs Windows
versions with and without Media Player
Doesn’t require price differences for those
Done to preserve competition among media
players for decisions by content makers as to
format in which to issue content
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Circle Back to Fourth Factor

Evaluating Foreclosure After Remedy Has
Been Implemented
If
no one wants Windows N, did Microsoft’s
refusal to sell a separate version actually foreclose
any competition?
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Platforms and Format Dominance
CFI Finds Abusive Tying Without
Consideration of Content Formats (¶ 1058)
 What is the claim regarding content
formats?

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How Should Microsoft Design
Windows Going Forward?

Hypo: Two New Functions
MS
wants to add two new features to the next
version of Windows
Is it allowed to go that? Must it sell with and
without versions for each, for four versions total?

Under the CFI decision, what limits the
number of versions that must be offered?
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XP N sales represent 0.005 percent (1/20,000th
of one percent) of overall XP sales in Europe.
No PC manufacturers have ordered or
preinstalled Windows XP N on PCs.
Only 1,787 copies of Windows XP N have been
sold to retailers and distributors in Europe.
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Microsoft Factsheet, Apr 2006
The number of copies actually purchased by
consumers is not tracked; many may still be
sitting on store shelves. The French retailer
FNAC, the single largest retailer to order XP N
representing 46% of the orders, has stated that it
sees no consumer demand for Windows XP N.
By comparison, 35.5 million copies of the fully
functional version of Windows XP were sold in
Europe during the same nine-month period.
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Microsoft Factsheet, Apr 2006)
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Link
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Feb 27, 2008
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European Commission, 17 Jan 2009
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European Commission, 16 Dec 2009
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www.browserchoice.eu
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www.browserchoice.eu
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www.browserchoice.eu
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July 17, 2012
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Oct 24, 2012
€561 Million fine for mistaken
implementation of browser choice
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Copyright © 2012-13 Randal C. Picker
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Mar 6, 2013