The Biz of Coding

Microsoft’s Antitrust concern on Google’s DoubleClick acquisition

by Ujwal Tickoo on April 17th, 2007

In a weird twist of fate Microsoft has raised antitrust concerns about Google's recent $ 3.1 billion buyout of Internet Adserving firm DoubleClick. Microsoft 's complaining that Google would have a dominant position in Online Search is amusing when for years Microsoft has used its own dominant position in Windows to kill competitors:

The $3.1 billion acquisition…would combine the largest providers of online advertising and create a dominant force, Microsoft said…."By putting together a single company that will control virtually the entire market . . . Google will control the economic fuel of the Internet," said Brad Smith, general counsel for Microsoft.

In Vista Microsoft has tightly integrated Web and Desktop Search — wouldn't that be using its own dominant position in the Desktop OS space? Perhaps, with this claim Microsoft is conceding that it cannot beat Google in Search/Advertising even though its executives have claimed quite the contrary several times over.

Ofcourse Google has a right to compete. As much as Microsoft — which for years has copied successful 3rd party software and integrated that into Windows in the name of better serving customer interests. Right to compete with strong competitor is what Microsoft has been claiming for years in courts. Now whats the problem when Google competes with equal vigor?

Google just outbid Microsoft on DoubleClick and that must have hurt Microsoft's executive egos to no end. It must be hurtful for Microsoft to see that Google has grown revenue blazingly fast and built an alternative business model that could be eventually used to serve software based on Advertisements. Plain simple Jealousy. That is what Microsoft is showing.

Anticompetitive Behavior

Here is a summary of Anticompetitive behaviour & related laws that I have read on Wikipedia and some other texts on this subject. The following types of activities are generally prohibited as noted in Wikipedia :

Price fixing, Bid rigging (agreement in which one party of a group of bidders will be designated to win the bid), Predatory Pricing ( situation in which a firm sells products at very low prices to either disallow a new potential competitor or drive away competition from the market), Tying (to make the sale of one good conditional on the purchase of a second distinctive good), Vendor lock-in (Situation where a customer is so dependent on a vendor for products and services that he or she cannot move to another vendor without substantial switching costs, real and/or perceived), Geographic allocation (agreement between competitors to not compete within each other's geographic territories.) Walker Process fraud (Illegal monopolization through the maintenance and enforcement of a patent obtained via fraud on the Patent Office)

All these anti-competitive activities harm the economy as well as consumers.

Abuse of Dominant Position:  abuse of dominant position is considered an anticompetitive practice. A dominant position is defined as the ability to act independently of competitive forces. The determination of a dominant position normally requires definition of both a product market and a geographic market. Cartels are generally considered as a group that practices abuse of dominant position.

Antitrust Laws in the US
Sherman Antitrust Act:  Sherman Antitrust Act, outlaws trusts and prohibits monopolies or attempts to monopolization. Details are described below :
Section 1 of the Sherman Act, prohibits contracts, combinations or conspiracies in restraint of trade. Example: explicit agreement amongst producers to restrict output or fix prices.
Implicit collusion by displaying “parallel conduct” can also be assumed to violate this law. Example: Given two firms, one firm always follows the others pricing and if this is contrary to expected business thinking/behavior — in conditions of decreased demand or over supply firms could be expected to simultaneously change prices without colluding. An implicit understanding can be inferred when such behavior is displayed.
Section 2 of Sherman Act makes it illegal to monopolize or attempt to monopolize a market. It also prohibits conspiracies that result in monopolization.
Clayton Antitrust Act : The Clayton Antitrust Act pinpoints practices that are likely to be anticompetitive. Example it bars a firm with a large market share to require a buyer or lessor not buy from a competitor. It also outlaws predatory pricing – pricing policy to drive out competition or to discourage new entrants.
The Clayton Act also prohibits M&As that either create a monopoly or substantially reduce competition.
Robinson Patman Act
This Act amends the Clayton Act and makes it illegal to practice price discrimination (charge different buyers different prices while selling the same product) if this injures competition or buyers.
Federal Trade Commission (FTC) Act
This act supplements Clayton and Sherman Acts by encouraging competition. It prohibits several actions such as deceptive advertising, agreements with retailers to exclude competing brands etc.
Methods of Enforcement:
FTC and the Antitrust Division of the DOJ enforce Antitrust laws. FTC is empowered to stop companies temporarily from employing suspected anti-competitive practices. Justice Department probes and prosecutes businesses. When the U.S. government establishes in court that a company has been involved in antitrust activities, it can take one of the following 3 actions:
1. Break up the monopoly into well-defined components
2. Force businesses to tell customers about competitors
3. Force monopoly to distribute competing products.
NOTE: The U.S. government enforced the 3rd choice only on Microsoft. It never before required a company to distribute a competing product. The US government demanded that Microsoft either not distribute IE with Windows 98, or that it distribute Netscape Navigator along with IE.

POSTED IN: Microsoft