The Dubious Antitrust Argument for Breaking Up the Internet Giants

For a useful outline of the various steps in U.S. v. Microsoft, see “U.S. v. Microsoft: Timeline,” WIRED NEWS, Nov. 4, 2002, http://​www.​wired.​com/​techbiz/​it/​news/​2002/​11/​35212.

For example, see Shapiro (2009, p. 762); Nicholas Economides (2001); and Gregg Keizer, “The Microsoft breakup that never happened,” Computerworld, June 18, 2013, available at https://​www.​computerworld.​com/​article/​2497911/​microsoft-windows/​the-microsoft-breakup-that-never-happened.​html.

See, for example, Brian Feldman, “U.S. v. Microsoft Proved That Antitrust Can Keep Tech Power in Check,” New York Magazine, December 12, 2017, available at http://​nymag.​com/​selectall/​2017/​12/​u-s-v-microsoft-proved-that-antitrust-can-check-tech-power.​html.; Greg Ip, “The Antitrust Case Against Facebook, Google and Amazon,” The Wall Street Journal, January 16, 2018, available at https://​www.​wsj.​com/​articles/​the-antitrust-case-against-facebook-google-amazon-and-apple-1516121561?​mod=​searchresults&​page=​1&​pos=​3.

A more complete analysis of Section 2 cases may be found in Crandall (2001).

U.S. v. Standard Oil of New Jersey, 173 F. 177 (C.C.E.D. Mo., 1909), aff’d. as modified 221 U.S. 1 (1911).

Crandall (2001, p. 132).

Crandall (2001, p. 136).

United States v. American Tobacco Co., 164 F. 700 (C.C.S.D.N.Y) 1908), rev’d. 221 U.S. 106 (2011); United States v. American Tobacco Co., 191 F. 371 (C.C.S.D.N.Y. 1911).

Crandall (2001, pp. 138–141).

Crandall (2001, pp. 148–153).

United States v. Paramount Pictures, Inc., F. Supp. 53 (S.D.N.Y. 1946), aff’d in part and rev’d in part, 334 U.S. 131 (1948).

Crandall (2001, pp. 158–163).

United States v. United Shoe Machinery Corp., 110 F. Supp 295, D. Mass. 1953, aff’d. 391 U.S. 244 (1954).

Crandall (2001, pp. 163–175).

Greater detail on these historical developments may be found in Crandall (1990, Ch. 2).

Modification of Final Judgment, United States versus American Telephone and Telegraph Company, 552 F. Supp. 131 (D.D.C. 1982), affd. sub. nom., Maryland v. United States, 460 U.S. 1001, (1983).

The Telecommunications Act of 1996, 47 U.S.C. 229. “Unbundling” is the offering of specific separate network elements—local loops, network intelligence, etc.—to entrants.

See Crandall (2005, Ch. 8).

Capital expenditures were much slower to recover in the telecommunications industry than in the cable television industry (which was not subject to the unbundling mandate) after the “dot com” bubble burst in 2000–2001. See the data in the Census Bureau’s Annual Capital Expenditure Survey, available at http://​www.​census.​gov/​econ/​aces/​xls/​2007/​Full%20​Report.​htm.

A useful summary of this timeline may be found at https://​www.​wired.​com/​2002/​11/​u-s-v-microsoft-timeline/​.

New York v. Microsoft Corp., 224 F. Supp. 2d 76 (D.D.C. 2002) (D.D.C. States Remedy2002), aff’d sub nom. Massachusetts v. Microsoft Corp., 373 F.3d 1199 (D.C. Cir. 2004) (entering Final Judgment in the district court case that was brought by the various litigating states).

Brian Feldman, “U.S. v. Microsoft Proved That Antitrust Can Keep Tech Power in Check,” New York Magazine, December 12, 2017, available at http://​nymag.​com/​selectall/​2017/​12/​u-s-v-microsoft-proved-that-antitrust-can-check-tech-power.​html.

Greg Ip, “The Antitrust Case Against Facebook, Google and Amazon, The Wall Street Journal, January 16, 2018, available at https://​www.​wsj.​com/​articles/​the-antitrust-case-against-facebook-google-amazon-and-apple-1516121561?​mod=​searchresults&​page=​1&​pos=​3.

The tying argument was subsequently dismissed by the court of appeals, but the remedy focused in part on the difficulty in uninstalling Internet Explorer in Windows and installing rival browsers.

Pollock (2010, p. 6).

Julia Angwin "Sun Valley: Schmidt Didn't Want to Build Chrome Initially, He Says". Wall Street Journal, July 9, 2009, available at https://​blogs.​wsj.​com/​digits/​2009/​07/​09/​sun-valley-schmidt-didnt-want-to-build-chrome-initially-he-says/​.

Browser Market Share, NetMarketShare, December 2017, available at https://​www.​netmarketshare.​com.

Tess Townsend, “Here's how Google’s rival to Microsoft Office, G Suite, came together,” Recode, March 18, 2017, available at https://​www.​recode.​net/​2017/​3/​18/​14955654/​short-history-g-suite.

Page and Lopatka (2007).

Microsoft does both. As it explains in its 2017 Form 10K, p. 43: “Costs incurred internally in researching and developing a computer software product are charged to expense until technological feasibility has been established for the product. Once technological feasibility is established, all software costs are capitalized until the product is available for general release to customers. Judgment is required in determining when technological feasibility of a product is established. We have determined that technological feasibility for our software products is reached after all high-risk development issues have been resolved through coding and testing. Generally, this occurs shortly before the products are released to production. The amortization of these costs is included in cost of revenue over the estimated life of the products”.

Microsoft, 2002 Form 10K, p. 52.

Based on quotations found on https://​finance.​yahoo.​com. One would expect MSFT stock to outperform the S&P 500 in a time of rising equity prices, given that its estimated β is 1.28, according to Yahoo! Finance.

Easterbrook (1984).

One of his examples references a Commodore64 home computer!

Certainly, there are dissenting opinions to this view, given the decline in initial public offerings (IPOs), a wave of large mergers, and apparently rising concentration in U.S. industries. See, for example, Gao et al. (2013), Grullon et al. (2018).

Federal Trade Commission, FTC Approves AOL/Time Warner Merger with Conditions: Competitive Concerns Addressed through Open Access and Interactive Television Provisions, DSL Marketing Requirements, December 14, 2000, available at https://​www.​ftc.​gov/​enforcement/​cases-proceedings/​0010105/​america-online-inc-time-warner-inc. The merger was also reviewed by the Federal Communications Commission (FCC), which imposed additional conditions in approving the merger.

Emarketer.com data, reported in Facebook, Google Digital Ad Market Share Drops as Amazon Climbs, Investopedia, available at https://​www.​investopedia.​com/​news/​facebook-google-digital-ad-market-share-drops-amazon-climbs/​#ixzz5JSCv8ZDy.

One Click Retail data as reported at https://​www.​zacks.​com/​stock/​news/​288587/​youll-never-believe-amazons-share-of-the-ecommerce-market.

European Commission, Factsheet, “Antitrust: Commission sends Statement of Objections to Google on Android operating system and applications,” available at http://​europa.​eu/​rapid/​press-release_​MEMO-16-1484_​en.​htm

Nicholas Hurst, “Facebook’s Data Collection Faces Antitrust Charge in Germany,” Politico, May 18, 2018, available at https://​www.​politico.​eu/​article/​facebook-data-collection-could-be-an-antitrust-abuse-in-germany/​.

Large fines are also a possibility as the European Union has shown in cases against Microsoft, Google, and other large firms.

See, for example, Mayer-Schӧnberger and Ramge (2018).

Even if the resolution of these cases did not generally lead to a major improvement in economic welfare, it is possible that they may have succeeded in deterring future attempts to monopolize. The benefits of any such deterrence, if it exists, are very difficult to observe and even more difficult to measure.