I’ve been involved in a lively and interesting discussion over at The Liberty Papers. It started with this post by Eric Cowperthwaite that quickly led into a discussion on the libertarian position on monopolies and large corporation. Then, Brad p ……

You appear to be contending that Microsoft’s dominance in the OS market somehow distorted the market and prevented the development of competing operating systems, and that that is a bad thing. Am I correct ?

This, I think, is where we disagree. I don’t think you can characterize a particular market outcome as good or bad, it is merely the reflection of consumer choice and apparently superior business skill (and arguably bad business decisions by the likes of Apple, Corel, etc that allowed Microsoft to become more dominant that it otherwise might have been) on a mass level. Is it good or bad that Windows is so dominant ? Who knows ? If it weren’t for a mass commodity like Windows the PC marketplace over the past 10-15 years would have been very different. The PC is a consumer commodity now, not a techie tool, and most consumers are, apparently, happy with the decision that Dell made to ally itself with Microsoft.

I will address this later today, but I would submit that Microsoft does not even qualify as a monopoly under the traditional economic definitions. That notwithstanding, its dominance in the marketplace is, from a libertarian point of view, neither good nor bad, it just exists, at least until some upstart comes along and changes the playing field.

It does matter when the coercion occurred because the factors driving scarcity in the PC market were different in 1996 and 2006.

And it doesn’t matter when the so-called coercion occurred. Dell didn’t have to agree to the terms and Microsoft had every right to insist upon them if it could get Dell to agree to them.

>>you still haven’t dealt with why it is immoral >>for Brad to threaten my life, liberty or >>property directly but just fine for a company to >>do so directly with another company or >>indirectly with individuals.

How, specifically, has Microsoft threatened anyone’s life, liberty, or property ?

And you haven’t yet justified your use of the term “threat” to describe what Microsoft is doing if they choose not to behave on the terms you want them to. If I offer to sell you a computer, but only if you agree to only do certain things when you use that computer, am I being coercive? Even if I’m the only computer retailer within 1000 miles? Even more to the point, am I threatening your life, liberty, or property, if I choose not to sell on your terms?

Last, though, I will agree with you that it’s quite possible Microsoft’s market position was improperly aided by government action and protection. And if that is the case, I do believe that is wrong and should not have occurred.

You are applying technology of 2006 to try and undesrstand something that occurred in 1998. You are also ignoring the potential for collusion (if you can’t beat ‘em, join ‘em). And, you still haven’t dealt with why it is immoral for Brad to threaten my life, liberty or property directly but just fine for a company to do so directly with another company or indirectly with individuals.

If a monopoly comes about because of the operation of market forces, then I fail to see what’s wrong with it.

As Brad pointed out above, economics teaches that a monopoly that becomes lazy can be subject to upstart competitors because it becomes too reliant upon its existing monopoly and fails to innovate. Though not true monopolies, this is what happened to IBM, Digital, and other heavyweights of the mainframe era who found themselves pushed aside by the PC. As long as there are no legal barriers to entry, there is always the possibility that someone will come along and knock the king off his thrown. Sometimes that king is able to reinvent itself, like IBM did. Other times, it just fades away. It has happened before, and it will happen again.

The problem comes in when there is a “monopoly” created not by market forces but by government fiat. The classic example of this, of course, is the post office. Even if FedEx and UPS wanted to compete with USPS in the delivery of first-class and bulk rate mail, they are forbidden by law from doing so. Until recently, local telephone companies, electric companies, and gas companies also had a legally protected monopoly in the delivery of their services. Cable television is still a monopoly in most local jurisfictions. In those situations, the king can’t be deposed because the state forbids competitors from even existing.

I don’t make a judgment as to whether or not a market-created “monopoly” is a good or bad thing, it just is. If one exists, and it operates within the bounds of the law, then I don’t see that its any business of mine to make a judgment as to whether or not it is moral or not.

I don’t have too much to add to the Microsoft-Dell argument that Brad hasn’t already said, except this (and its something I’ve said several times today; Microsoft saying that it will only do business with Dell under certain conditions does not constiitute threatening Dell’s rights or property. Telling Microsoft that it doesn’t have the right to do business on its own terms, does violate Microsoft’s rights and property.

Finally, accepting for argument’s sake that there is something morally wrong with monopoly regardless of how it is created, what is it that you propose be done about it ? In the end, the only thing I can see happening is state involvement to break that monopoly up.

Let me ask you a question. Dell is a major PC manufacturer. I don’t know the numbers, but my *guess* is that they’re the largest in the world. Dell has quite a few engineers on staff, including software engineers. What would happen if tomorrow, Dell said they were transitioning all of their systems to Linux. They’d like to offer both, but Microsoft won’t let them, so they’ll preload Linux and pass the savings on to customers. They’ve got enough software engineers at Dell that I’m sure they’d put together a system just as usable as the preconfigured Windows systems, and a heck of a lot cheaper.

Dell has the market size to make a change like that. And what would the IMMEDIATE response be from Microsoft? They’d renegotiate their contract with Dell so that they’d still get loaded on some systems. Maybe they’d renegotiate so that Dell would continue putting Windows on home/business systems, and Linux on servers. Or maybe they’d change their pricing structure to offer better pricing on Office & XP Pro. Or any number of other situations. Microsoft needs Dell’s revenue just as badly as Dell needs Microsoft’s operating systems. Microsoft would be quick to change their tune if someone with any sort of heft challenged them on this. And if they weren’t quick to change their tune, they’d lose market share, which they cannot afford to do, because it jeopardizes the power base they’ve built.

Now, it’s not likely that someone the size of Dell would do that. After all, they already have such huge volumes that they’re getting much better licensing costs from Microsoft than any other manufacturer, so they continue selling in volume. And the switch would have high transition costs, so it’s better for them to stay where they are.

But not so for eMachines, or Compaq, or Acer, or the other “small” manufacturers. They’re not getting the good pricing from Microsoft, and they’re small and nimble enough that they could position themselves as a “niche” brand based on Linux.

So where is the “coercion” again?