Microsoft vs. European Union Competition law

Introduction

This paper aims to provide a thorough analysis of a Competition policy case and will focus on providing economic insight. The case discussed in the paper has been handled by the Commission of the European Communities. To the Commission this case is relevant, because the company under scrutiny (Microsoft Corporation) is active in the European Economic Area (EEA). The attention of the European Competition Authority (CA) was drawn to Microsoft when Sun Microsystems, a close competitor of Microsoft, lodged a complaint to the Commission (10 December 1998).

In this complaint Sun alleged that Microsoft enjoyed a dominant position as a supplier in the market for PC operating systems (Article 3 of Regulation 17). Sun also alleged Microsoft infringements of Article 82 of the Treaty by reserving for itself information that other server operating systems need, to be able to interoperate with Microsoft's operating systems. In other words, Microsoft would not allow for viable competition the market for operating systems. After investigations the Commission (in the year 2000) added a third component. Microsoft was now also investigated for not complying with Article 82 for tying their "Windows Media-player" to their operating systems.

Discussion

Sun and Microsoft are competing in all EEA countries, for the supply of computer related products. Microsoft is a Washington based company selling software related products. The rough turnover of the company was 30 Billion Euros in the year 2002, with a profit of 13 Billion. Microsoft has 55,000 employees around the globe. It equips more than 95 percent of the world's personal computers. At the same time Sun Microsystems is a Californian soft- and hardware manufacturer. In 2002 its turnover was roughly 11 Billion Euros, with a net loss of 2 Billion Euros on its turnover (Walker, Mike and Bishop, Simon, pp 34-188).

Article 82 forbids a firm abusing a dominant position in the products relevant market. The CA would therefore not be alarmed by a complaint about having a dominant position only. Simply having a dominant position is not illegal; having a natural monopoly for example is allowed. It is the exploitation of that dominant position that is of interest to the CA (Vezzoso, pp 121-189).

Abuse of a dominant position is thought to reduce competition, which is bad for consumers. Lack of competition drives the product price up and reduces consumer surplus/total welfare. When a firm has a dominant position in one market it does not necessarily have a dominant position on the relevant market. Therefore geographic and product markets have to be defined first. After this the CA has to assess whether dominance exists on those markets (www.microsoft.com).

Windows media player and abuse of Article 82

The European Commission emphasizes in a press release that the effect of tying, by Microsoft, of its media player (WMP) has the effect of foreclosure on its competitors. This is bad for consumers since it reduces consumer choice and produces an unequal playing field for competitors. Evidence shows that tying has been in favour of Microsoft. They mention ...