TCS Daily

Whom Do You Trust?

By P. Gardner Goldsmith - March 24, 2004 12:00 AM

European Union officials announced today a record antitrust fine of $613 million levied against computer giant Microsoft for what are called "anti-competitive" practices. If this term sounds uncannily familiar to you, it is because former Clinton Attorney General Janet Reno used similar language to smear Microsoft during the federal government's vendetta against the company beginning in 1998.

Since the early 1990's the EU has increasingly rejected the market-oriented philosophy of the Treaty of Rome in favor of the meddlesome antics of the Brussels Commission. A plethora of intrusive regulations or programs have been instituted or proposed, including attempts to quash smoking, tell people how to take vitamins, play with toys, and even use condoms. In 2001, Competition Commissioner Mario Monti blocked General Electric from buying Honeywell International. One man and his associates correcting the choices of thousands of stock-holders and millions of consumers.

his political appointee, who has nothing to do with making a product, and who does not have to compete in the market as do those he wishes to regulate, owns the obtuse title of "Competition Commissioner." The irony of it is almost laughable. But there is nothing laughable in what Mr. Monti and his acolytes propose this year. The payoff for Microsoft to get the EU off its back will be more than half a billion dollars, plus concessions involving the unbundling of its Windows Media Player, and program sharing.

Supposedly, this will "level the playing field" for its competitors. Normally, one might think that a man with the title of "Competition Commissioner" would understand that regulations by non-market forces to make things "more competitive" are, by their nature, anti-competitive. Competition outside the market cannot exist, because market choices are being superceded, consumers are not the ones making the decisions, and companies do not have to compete for them. The fallacy that government can make things more competitive is absurd on its face. It stems from a complete misunderstanding of the terms competition and monopoly.

When a company acquires majority market share through open competition, a strange thing happens to bureaucrats and politicians. They begin to worry about "anti-competitive pricing" that could eliminate competition and eventually harm consumers. But in order to achieve and keep any comfortable position in the marketplace, a company must cater to the wants of consumers. The very process of rising to a position of dominance is one driven by satisfaction of consumer demand. Big companies are big precisely because they have succeeded in offering something valued by their customers.

Some politicians worry that dominant companies could utilize their massive assets to offer new products at artificially low prices, thus destroying smaller competitors. But if it is publicly held, and potential buyers find the company's plan unproductive, the stock will begin to drop in value. By the same token, if the company can introduce new products at cheaper prices by utilizing its strength, stock prices will rise. Meanwhile, consumers will be getting a product that is better or less expensive than what was available before, which is the goal of market competition.

Even when presented with this logic, some politicians fear that a large company, once it has acquired market dominance, will begin gouging its customers by raising prices. Since the customers will have "no place to go" they will be forced to pay excessively high prices.

This is the most basic of errors, based on a misunderstanding of free exchange and competition. Any business operating in an open market must satisfy the customer, for if it does not, it will be vulnerable to new competition catering to dissatisfied customers. Prices must be kept at a rate the market will bear, or else an opportunity for a new entrepreneur will appear. This stands in stark contrast to government programs and government enforced monopolies like the US Postal Service. In such cases, competition is banned, and the only way to effect change is not through competition or the threat of it, but through the messy mechanism of majority rule at the ballot. Inefficiency, waste, and corruption are the norm in such situations.

Today's ruling is just one example of the left-leaning tendencies of what began as an experiment in free markets. It does not bode well for the European Union. The sooner the EU retreats from this bureaucratic paradigm, the better, for businesses and consumers on both sides of the Atlantic. But don't expect to see the changes any time soon; after all, people like Mario Monti view today's action as an unprecedented success, and they are the government experts on "competition."


TCS Daily Archives