1 gen 2036 anni - Harvard Business School: Parallels between Microsoft and Google antitrust cases

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AUGUST 2022 ARTICLE AEI DIGITAL PLATFORMS AND AMERICAN LIFE PROJECT
The U.S. Approach to Antitrust Policy in Technology Markets
By: Shane Greenstein


====EXCERPT====
"In many ways, the general allegations in the Microsoft case echo those of AT&T’s. Many firms had no choice but to work with the dominant company’s operating systems, despite a broad array of encumbrances, which also limited the supply of complementary products. The dominant firm had considerable control over software and service, and it had maneuvered itself into a position to settle any dispute in self-serving ways. Numerous impediments erected by Microsoft deterred partners from growing into businesses that would threaten the dominant firm’s many business interests.

There was one key difference, however; Microsoft made money from selling its operating system, and it made the operating system indispensable for PC applications. Microsoft willingly aided most of these applications as business partners, unlike AT&T, which usually refused to cooperate with such partners unless forced through regulatory oversight.

In other words, Microsoft was more selective than AT&T about its uncooperative actions. Although Microsoft had invited many partnerships with software firms and other peripheral providers, eventually it discouraged others, sometimes without explanation.

Then, early on in the commercialization of the internet, Microsoft overreached and, just like AT&T before it, caused a potential mismatch between supply and society’s demand. There was demand for pluralism in supply, this time for a variety of innovative products and services related to the commercial internet. Yet the dominant firm offered its own while deterring options that did not serve its own interests, especially by making distribution difficult for companies it deemed threatening.
Specifically, in 1995, Microsoft had some plans in place to support the commercial internet, but those plans anticipated back-office activity and did not foresee the potential for growing businesses by using a browser on a PC.

As a result, many entrepreneurs initially turned elsewhere to develop applications. Once Gates saw partners going to others, he focused on the activities at Netscape and other supporting firms and arranged to have Microsoft build something similar. His firm announced those goals, but it was late and did not catch on.

In 1995 and 1996, Microsoft needed to catch up. The firm bought itself time by using its size and control to discriminate in favor of friends. It created a broad array of impediments on the distribution of products or services offered by companies that had to work with the Microsoft operating system.

In scores of frustrating ways, it would sign deals that excluded those who might threaten Microsoft’s leadership position; exclusive use of Microsoft’s browser became part of those quid pro quos.

Other actions, such as one with Sun Microsystems, the sponsor of Java, reeked of bad-faith negotiations, even though Java was popular with users. The court heard a vigorous debate about these actions, the contours of which are likely to reappear in the pending case against Alphabet. The parallels with Google are striking.

Lessons for Google
Alphabet has signed many deals with others that require Google to be the default search engine. The prosecution alleges that these arrangements impede entry of potential rivals. Once again, the central question is whether exclusive provisions in contracts deter pluralism in supply, while the dominant firm offers only one option.

As an illustration, consider the smartphone market. One firm, Google, gives away services (e.g., search) to attract users for auctions that sell ads. Google owns, guides, and licenses an operating system (i.e., Android), which it offers to other smartphone firms (e.g., Samsung). It requires that Google be the exclusive default search engine. Some of these phones are sold by carriers (e.g., AT&T, T-Mobile, and Verizon) to which Google makes payments for exclusivity. Apple sells devices (e.g., iPhones) and generates profit from its cut of applications and music sales.

These compete with Google’s online store, which also sells apps and music. Google licenses Apple to make the Google search engine the exclusive default on the iPhone. At almost every point in the assembly and distribution of smartphones, a deal with Google restricts participants to exclusivity. That extends to carriers and handset makers, some of which are direct business partners with Android.

These deals also extend to ostensible rivals, such as Apple. (More on this later.)
Why is there a single and exclusive option? Google could construe this arrangement as a favor for users, most of whom are likely to use Google. Many users never play with defaults and have no idea how they work. Most users rarely reset them more than once with a device.
Google could argue that its arrangements simplify the user experience, which reduces hassles and frictions that many users would prefer to avoid. The prosecution will ask two provocative questions: Could the same participants deliver the same set of services without exclusive clauses in the contracts? How many users and suppliers would alter the defaults if the exclusivity clauses disappeared tomorrow?

The prosecution will argue that many suppliers and users would experiment with alternatives, and such a change would generate no loss in the quality of services rendered for users.
The prosecution only succeeds if it persuades a judge that its sketch is plausible.

In this case, the sketch goes like this: Other entrepreneurs and existing firms that have tried to develop search engines might invest in trying to convince users to experiment with their products. The exclusive deals narrow the foothold now, limiting the potential for experiments with new firms and alternatives.
The last wave of venture capital–funded aspirations in search ended a while ago, and perhaps another would get going if any new firm shows how to gain a substantial market foothold. Pluralism in supply could yield broad benefits by increasing opportunities to innovate. It is always possible for somebody somewhere to have a new idea. Absent the exclusive deals, Google would have to play whack-a-mole with every new idea from any random firm. Google would have to improve its product more frequently, invest in marketing and education at a high rate, and find creative ways to satisfy the users who could have, or would have, played around with those defaults.

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