Here we go again. Will the computer industry ever escape its antitrust problems?

Posted by The Economist

Here we go again. Will the computer industry ever escape its antitrust problems?

“This antitrust thing will blow over.” Thus Bill Gates, then the boss of Microsoft, a decade ago as regulators launched an action against his company. The chiefs at other big technology firms, even if they were not quite so outspoken, doubtless held similar views when their companies were targeted by trustbusters. It was wishful thinking then, and remains so today, as long-running antitrust actions flare up again and regulators ponder new moves against the industry’s giants.

Perhaps as soon as next week the European Commission will issue its long-awaited decision in the case against Intel, the world’s biggest chipmaker. It is expected to impose a whopping fine of at least €1 billion ($1.3 billion). In early June Microsoft will defend itself in a hearing in Brussels against accusations that it illegally bundled its web browser with its Windows operating system—the very practice that got the software company into trouble in the late 1990s. IBM, the target of trustbusters since the 1950s, faces a new antitrust complaint. And Google, the industry’s newest giant, is also coming under closer scrutiny. On April 29th it emerged that America’s Justice Department is examining whether Google’s settlement with authors and publishers over its book-search service violates antitrust laws; and on May 5th the Federal Trade Commission (FTC) launched a probe to see whether Google’s sharing of two board members with Apple reduces competition between the two firms.

The computer industry makes more antitrust headlines than others, and seems unlikely to shake off these problems, for three reasons. The first is that technology heavyweights are often dominant in their respective markets. Ask any of the bosses of these firms why they are so dominant and they will probably respond that it is a result of billions spent on research and development. But they also operate in markets that allow a winner to take all (or most). Mainframes and operating systems benefit from strong network effects: the more applications run on them, for instance, the more users they attract, which encourages programmers to write more applications for them. With microprocessors, ever-increasing capital requirements mean only the biggest firms can afford to build their own factories. The markets for search and online advertising exhibit similar effects: the bigger a firm’s market share, the greater its ability to attract advertisers, thus bringing in the money to build ever bigger data centres. In each case it is difficult for an upstart to break in.

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