Innovation Effective in Addressing Competition Concerns

Innovation Effective in Addressing Competition Concerns

Authors Question Impact of Antitrust Remedies on High Tech Markets

Contact: Amy Smorodin
(202) 828-4405

January 5, 2011 – Technological innovation has a much greater effect on competition in high-tech sectors than antitrust remedies, according to research by Robert Crandall and Charles Jackson in “Antitrust in High-Tech Industries” released today by the Technology Policy Institute. Antitrust remedies have not been successful at accelerating competition in such markets; rather competition has developed from technology that regulators could not predict. The paper is a revised version of a paper presented at the recent TPI conference, “Antitrust and the Dynamics of Competition in High-Tech Industries.”

In the paper, Crandall, Non-resident Senior Fellow in Economic Studies at the Brookings Institution, and Jackson, Adjunct Professor of Computer Science at George Washington University, examine the three most high-profile technology antitrust cases of the last half century: IBM, AT&T and Microsoft. Although the cases were resolved differently, each illustrates how technological change, not government action, ultimately led to market changes:

  • IBM: The antitrust case against IBM, first filed in 1969, went on for thirteen years before the government asked the court to dismiss the case because it was “without merit.” Ultimately, the competitive structure of this market changed because rapid technological change led to the development of personal computers connected to the Internet and using services provided by servers (minicomputers), something the government never envisioned when it filed its suit. It is doubtful that the government’s objectives of unbundling components or divestiture of operations would have had any impact in the computing revolution brought about by personal computers.
  • AT&T: The divestiture of AT&T in the Justice Department’s antitrust decree and the Federal Communications Commission’s implementation of equal access did affect the competitive landscape in telecommunications. However, the development of high-speed Internet access and platform-based competition from wireless and cable TV, which occurred long after the consent decree, had a more dramatic and lasting impact on competition in the market.
  • Microsoft: Despite the DOJ/Microsoft decree and the 2004 European Union order mandating interconnection requirements and unbundling of its web browser, Microsoft remains dominant in desktop operating systems. However, the company faces competitive threats from smartphone operating systems, cloud computing, and virtual appliances. There is little evidence that these emerging technologies were a result of antitrust remedies; moreover, it is likely that the antitrust attacks on Microsoft’s integration of increasing functionality into its operating system had a deleterious effect on consumer welfare.

In conclusion, the authors reiterate that in each of the cases described, “the ultimate source of major changes in the competitive landscape appears to have been innovation and new technology – technology that was apparently not unleashed by the antitrust litigation.” Because the government could not predict how technology would develop over time, “it was difficult for the government to design remedies that would accelerate competition when this competition developed from new technologies.”

Antitrust in High-Tech Industries” is available on the TPI website. Another previously-released paper from the event, “Antitrust and Vertical Integration in ‘New Economy’ Industries,” is also available.

The Technology Policy Institute

The Technology Policy Institute is a research and educational organization that focuses on the economics of innovation, technological change, and related regulation in the United States and around the world. More information is available at https://techpolicyinstitute.org/

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