ht by rivals.8 Competitors are unlikely to bother suing rivals that keep their output low and prices high. Microsoft is the ultimate competitor, setting the price of its browser, Internet Explorer, at zero. Microsoft's main competitor in the browser market, Netscape, was upset at such low-price competition and applauded the Clinton administration's lawsuit. It appeared as though Microsoft was leveraging its Windows operating system monopoly to create a new browser monopoly. That may not be the case, as appearances deceive. Until about 40 years ago, the standard economic argument was that a monopoly could be extended from Product A to Product B by requiring purchasers of A to buy B. But as antitrust scholar and former federal judge Robert Bork showed in his 1978 book, The Antitrust Paradox, this seldom works, because charging a premium for B reduces the price that can be charged for A. Mr. Bork explicitly rejected the government's reasoning. He wrote: "This is not a case about 'leveraging' or 'tie-ins,' as it is frequently described, even by government lawyers who understand the case." 9 So what is the lawsuit about? Mr. Bork says Microsoft is engaged in predatory pricing, giving its browser away to knock Netscape out of the market. However, economists have shown that predatory pricing doesn't typically make sense, because the losses are often larger to the predator than to the prey and because, once the predator raises prices, anyone who has bought the prey's assets at fire-sale prices becomes a low-cost competitor. The most famous allegation of predatory pricing was made against John D. Rockefeller and Standard Oil of New Jersey.10 None the less, in a 1958 article in the Journal of Law and Economics, University of Washington economist John S. McGee concluded, after studying the transcript of Standard Oil's 1911 trial, that there was no evidence that Standard was guilty of such tactics.In any case, the standard economic argu...
