The European Union clearly has not yet learned the lesson of the antitrust paradox as lawyers and regulators continue to blindly move forward in their assaults... ‘The Antitrust Paradox’ Continues

More than a quarter century ago, Robert H. Bork noted the conflict between the pro-consumer policy behind the antitrust laws and the pro-competitor approach developed through their enforcement. In his seminal book The Antitrust Paradox: A Policy at War with Itself, Judge Bork, then a Yale law professor and later an influential federal appellate judge and Supreme Court nominee, argued, in the words of one reviewer, that antitrust enforcement had "led to the protection of inefficient competitors, the punishment of successful firms, and, ultimately, the detriment of the interest of consumers, which the antitrust laws were designed to protect in the first place."

Specifically, Judge Bork explained that the overzealous application of the antitrust laws and the resulting intervention into otherwise free markets did not maximize consumer welfare by ensuring lower prices, as is the purpose of antitrust policy. Instead, such an approach achieved the opposite effect by sacrificing potential consumer savings in order to level the playing field between admittedly unevenly matched competitors. In other words, the economic reality of antitrust enforcement is to prevent consumers from reaping the benefits of lower prices by punishing those large companies that are best able to produce products at lower costs because of their ability to employ efficient economies of scale in supplying their substantial market shares. Hence, the paradox: enforcement of the antitrust laws undermines their very purpose because legal intervention artificially elevates consumer prices by propping-up failing competitors in order to create the mirage of fair competition.

So it was a quarter century ago here at home. And so it remains today, but now the problem is across the Atlantic Ocean.

The European Union clearly has not yet learned the lesson of the antitrust paradox as lawyers and regulators continue to blindly move forward in their assaults against dominant market forces. Most notably, the EU continues to press an antitrust case against Microsoft, arguing that that the company should not only be forced to pay the largest fine in history but also that the software leader should have to hand over some of its most costly and valuable intellectual property to its already unsuccessful competitors. In fact, just as if Judge Bork were writing the script, EU lawyers told the appellate court considering the case that the EU was simply trying to create a level playing field and that such severe sanctions were necessary in order to give Microsoft’s competitors a better chance of selling their products. In other words, the EU believes it is just a final antitrust judgment away from arriving at a competitive software oasis that was never really there.

Indeed, the EU’s lawyers and regulators should be focusing their sights on their fellow travelers rather than on the ever-elusive competitive goal on which they continue to fix their gaze. Maybe then they would recognize the paradox described by Judge Bork that is so clearly at work again. After all, the very competitors that Microsoft was handily beating in the open market are the EU’s inseparable companions on the antitrust trek. And why not? They understand better than anyone else how the paradox works — that they are the primary beneficiaries as the EU handicaps their previously overmatched rival through the antitrust case.

But while Microsoft’s competition continues to benefit from the EU’s aggressive approach, EU citizens and, in fact, those around our now economically and legally interconnected world are paying the price. Not only is it costing Microsoft millions of dollars just to defend the antitrust action, but the very nature of the allegations prevents the software leader from trying to increase its market share by undercutting the prices offered by the legally propped-up supposed competition. Moreover, if the EU is successful, Microsoft may be forced to impose additional costs on consumers by removing useful software applications from its Windows operating system — again not to maximize consumer welfare or to lower prices, but to level the playing field for other companies who were never real players in the first place.

Fortunately, the appellate court seems to have some awareness of the paradox that is at work. During the two days of oral argument before the European Court of First Instance, Judge Bo Vesterdorf, who is presiding over Microsoft’s appeal, wondered aloud on several occasions why the EU should be allowed to impose such draconian penalties when neither the lawyers nor the regulators could forecast the probable effects. "Isn’t it inadequate to impose a remedy when you don’t know what the effect is going to be?" Judge Vesterdorf asked the EU lawyers. "Isn’t it drastic to propose a remedy that you don’t know whether it will work?"

The answer was unavailing, proving once again that the EU neither considers nor understands the paradox. We cannot predict what consumers would do, the EU lawyer responded. Not that it mattered anyway because the point of the case against Microsoft has never been to help consumers through lower prices or better products but has, instead, always been to arrive at the competitive mirage the EU imagined from the beginning. And so the antitrust paradox continues, at least for another couple years until Judge Vesterdorf rules.

October 14, 2004
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