Wednesday, March 24, 2004

Ah, Microsoft

Thanks to Ben, I noticed this post from Prof. Bainbridge on Microsoft and bundling. Bainbridge argues that bundling is anti-competitive and serves to reduce innovation. "Preventing Microsoft from bundling [stuff] into the Windows operating system is critical to preserving competition and promoting innovation." Except that not-bundling may also serve to reduce innovation and kill competition.

Computers and their peripherals are one of the clearest examples of network effects (telephones are probably the best; who'd want a one-phone phone system. sure, you could talk to yourself, but you don't need a phone to do that), where you see intense competition to enter into a market and then once you reach sufficient size you enjoy a monopoly. The suggests that you'll see not just a common OS, but also a common browser, probably a common media player, a universal word processing program, and etc. Microsoft's bundling of a browser, a media player, etc. into their monopoly OS merely helps to ensure that those monopolies are in the hands of Windows. Is this necessarily a bad thing? Bainbridge certainly seems to think so, but it's not at all clear to me that he's right. The literature on double marginalization (a.k.a. the Cournot effect) suggests that if you're going to have a monopoly in two linked products, then it makes a great deal of sense to have them be tied to one supplier, to avoid the problem of two monopolists seeking monopoly rents and thus increasing price and reducing output (the two things that are anathema to antitrust authorities).

Additionally, Bainbridge's flat opposition to bundling seems to say that we have reached the ideal state of the Operating System, and nothing may be added to it, ever. Perhaps he doesn't mean it quite so strongly, but some people do. This assumes, however, that we have reached the ideal state of the Operating System, and it's not at all clear to me that we have. As I noted in a previous post, WSJ columnist Walt Mossberg argued ($) for the bundling of an antivirus system into the Operating System, something that was rather surprising when I read it, but it seems to make a great deal of sense. After all, why shouldn't the generalized hierarchy that makes all the bits of electronics give you something on your screen (the OS) include something that deals with all the threats to that. Symantec (Norton) and McAfee would cry bloody murder and run to the DOJ and Congress, of course, but so what? I don't really see the theoretical problem with antivirus software bundling, though I am sympathetic to the "I don't trust Microsoft to do it well" argument. If, however, M$ did it and didn't do it well, Norton and McAfee would be able to keep selling their products, the same way Corel keeps selling WordPerfect.

UPDATE: Note to self: after hitting Preview Your Post, click Publish Your Post instead of letting it sit on your computer screen for six hours.

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