Winners, Losers & Microsoft: Competition and Antitrust in High Technology (Independent Studies in Political Economy) [Hardcover]

Stephen E. Margolis (Author), Stan Liebowitz (Author)

Book Description

Series: Independent Studies in Political Economy | Publication Date: September 1, 1999

Few issues in the high-technology field are as divisive as the raging debate over competition, innovation and antitrust. Why do certain products and technologies become dominant while others fail? Is there something about high technology that makes markets less dependable at choosing goods and services? Will the robust competition and tremendous technological advances of the past two decades continue? Or, will they be suffocated by larger firms employing monopolistic practices? Is antitrust primarily employed against monopolies to increase competition for the benefit of consumers, or is it actually a vehicle that firms use against their rivals to restrict the competitive process? Winners, Losers and Microsoft is the authoritative and in-depth book on these and other pressing questions now confronting high-technology markets.

Editorial Reviews

Amazon.com Review

In Winners, Losers & Microsoft, two top economists punch some big holes in the government's antitrust case against the software behemoth. Stan J. Liebowitz and Stephen E. Margolis argue that government lawyers are dead wrong to say that consumers are being forced to accept inferior standards and high prices because of Microsoft's hegemony.

With some well-documented and original research, the authors conclude that Microsoft is as successful as it is for a simple reason: good products win. "Whether they are lowly mousetraps or high-tech networks, better products prevail in the marketplace. People choose what they want, and what they want survives, at least for a while," they write. The authors also challenge the economists who believe that when it comes to technology, inferior standards get locked in because of unfair corporate actions or irrational consumer behavior. Through cogent analysis, Liebowitz and Margolis tear apart the two key examples used by these other economists: the VHS videocassette format and the so-called QWERTY typewriter keyboard layout. The authors argue that those formats dominate today because they truly were as good as, if not better than, their competitors, the Beta videocassette and Dvorak keyboard. While most of the book is theoretical and aimed toward those interested in public policy and economics, Winners, Losers & Microsoft can also be an eye opener for anyone who wants to learn more about the antitrust case against the company. --Dan Ring

Review

"Winners, Losers & Microsoft gives 'path dependence' a cold shower and sheds much needed empirical light on the success story we call Microsoft. The book is a pleasure to read . . . If you want to know the real reason we use QWERTY instead of the Dvorak keyboard and why we watch videos on VHS instead of Beta, read this book." -- George Bittlingmayer, Professor of Economics & Finance, Unversity of California, Davis

"Winners, Losers & Microsoft is instructive for all participants--the judge, defendants, plaintiffs and experts in the DOJ vs. Microsoft tragicomedy. For the rest of us, including Microsoft cusotmers and competitors, it is not too late to learn, as well as be entertained by, the Liebowitz-Margolis explanation and histories of several presumptive 'monopolies' of 'networks' and 'entrenched universal users.'" -- Armen A. Alchian, Professor of Economics, UCLA

"innovative and utterly convincing Their dismantling of commonly accepted myths about the QWERTY typewriter keyboard and the VHS-versus-Beta video struggle makes fascinating and illuminating reading. They conclude that Microsoft doesn't dominate software markets by cheating, but by creating products that work better than others." -- Mark Henricks, American Way Magazine

"the two economists did what no one who repeated the story seems to have ever done -- i.e., a little digging. The professors checked out this story.. by spending a lot of time in the library. They read every software product review from the past 15 years they could find and came up with a different conclusion. Microsoft, their evidence says, wins market battles (word processors, spreadsheets, browsers) when its products are better, and loses such battles (financial software, on-line services, palm-sized computers) when they aren't. The two authors have gone a long way toward reshaping the Microsoft debate. Henceforth, any judges, economists, pundits or journalists who discuss Microsoft or technology lock-in -- much less repeat the crusty old Qwerty tale -- without first dealing with the Liebowitz-Margolis critique should have their wrists soundly slapped." -- Lee Gomes, Wall Street Journal

There are lies, damned lies and statistics, as Benjamin Disraeli once noted. Respected economists Stan Liebowitz and Stephen Margolis use plenty of statistics to examine the key tenets surrounding the Microsoft antitrust trial. Their conclusion - that the market rewards companies that make the best products, period, and that the government should butt out - is well argued.

Their research makes a compelling case that Microsoft wins because its products are better built, better marketed and better liked, but their work under the auspices of the Independent Institute, a libertarian think tank in Oakland, Calif., is tainted by the recent disclosure in the New York Times that Microsoft secretly paid for prominent newspaper ads this summer in which the institute and 240 academic experts defended Microsoft against its antitrust-case rivals. The software giant also allegedly covered the first-class travel expenses of Independent Institute President David Theroux to attend a press conference the day the ads ran. (Theroux vigorously contested both these points last week in the Los Angeles Times.)

When asked by the New York Times what he thought of the Microsoft payments, Liebowitz, a professor of economics at the University of Texas at Dallas, said that while he wasn't aware of them, "it doesn't matter to me." It's a puzzling statement coming from someone who purports to offer an objective assessment of Microsoft.

These issues cannot help but cause readers to scrutinize Winners, Losers and Microsoft for signs of bias, if not lies, among the statistics. It's not an easy task, though. Much of the book veers away from the Microsoft case and into a dense theoretical thicket of antitrust case history, some of which the authors had published nine years ago in the Journal of Law and Economics, especially their famous debunking of the QWERTY keyboard myth.

The authors argue that their voluminous research proves that consumers don't get "locked in" to inferior standards, a la the popular economic theory of "network effects." Despite QWERTY's faults, they say, it never really had a viable challenger and thus deserves to be the standard until something better comes along.

Liebowitz and Margolis also go to great lengths to show that another well-worn "lock-in" parable - the victory of the VHS home-video format over Beta - was a story in which superior picture quality was not great enough to overcome Beta's shortcomings, such as limited tape length.

The authors later move on to recent software markets, arguing that one product's superior quality, aggressive pricing and innovative development can often quickly and decisively unseat a previously entrenched leader. When Microsoft's products are better than the competition's, the authors argue, it does the unseating, as the company did with its Web browser, word processor and spreadsheet applications. When its products are second-rate, it fails to take over, as happened with financial software and online services. What's more, they show that Microsoft's entry into a market almost always lowers prices across the board.

The authors make no bones about the book's goal: "Governments can help ensure that consumers get the best products by keeping government impediments out of the way of entrepreneurs competing to establish their mousetraps in the marketplace." Having established that the theory of network effects, used by Microsoft's accusers to show how the company defends and extends its monopoly power, only rewards good products, the authors close by defending the software giant against a host of accusations: Microsoft's monopoly stifles innovation; it's out to destroy competitors; it must not be allowed to control the PC desktop, and so on.

The book's only criticism of Gates and company is saved for the defense team, whose mishandled witnesses and bungled videotaped presentations are called "staggering public relations fiascoes." If Judge Thomas Jackson rules against Microsoft and is ultimately backed by the Supreme Court, the company's lawyers will be responsible, say Liebowitz and Margolis, for letting an unworthy economic theory - network effects - rule the day, and perhaps the next century, of antitrust legislation.

It's ironic that the arguments in Winners, Losers and Microsoft, as well reasoned as they might be, are also marred by poor publicity. Bad decisions, such as the Independent Institute's acceptance of what it now admits is 8 percent of its budget last year from Microsoft, may seem to compromise its researchers' methodology. But as Microsoft's marketers surely know, perception is sometimes as potent as reality.

-Alex Lash -- From The Industry Standard

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Product Details

• Hardcover: 288 pages
• Publisher: Independent Institute (September 1, 1999)
• Language: English
• ISBN-10: 0945999801
• ISBN-13: 978-0945999805
• Product Dimensions: 9.1 x 6.2 x 1.2 inches
• Shipping Weight: 1.6 pounds
• Average Customer Review: 4.4 out of 5 stars  See all reviews (18 customer reviews)
• Amazon Best Sellers Rank: #1,690,416 in Books (See Top 100 in Books)

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Most Helpful Customer Reviews

22 of 23 people found the following review helpful:

5.0 out of 5 stars Brilliant debunking of current antitrust law, March 20, 2002

By 

GUEST ACCOUNT (Amazon.com HQ) - See all my reviews

This review is from: Winners, Losers & Microsoft (Paperback)

Forget Microsoft. This book will make you doubt everything you've ever been taught about lock-in, bundling, and the ease with which market dominance can be abused.

But don't forget about Microsoft entirely--the book makes clear that the conventional wisdom about how the company achieved dominance could lead to "remedies" that would have a terrible effect on the software market as a whole--inevitably dooming winners to constant hamstringing or worse in order to enforce an artificial measure of competition.

The movie puts the lie to much that has been said about Microsoft by its critics, competitors, and even its advocates. Certainly no one connected to Microsoft has made such a devastating rebuttal of the charges against it. This book is a must-read for those interested in the outcome of that case.

10 of 12 people found the following review helpful:

5.0 out of 5 stars It's about time this work is made available for everyone., October 14, 1999

By A Customer

This review is from: Winners, Losers & Microsoft: Competition and Antitrust in High Technology (Independent Studies in Political Economy) (Hardcover)

Liebowitz and Margolis have done research on intellectual property issues for over two decades. Their work on new technologies began over a decade and a half ago. Their piece on the Fable of the Keys, was the lead article in the Journal of Law and Economics in 1990. Unfortunately, their other work on path dependency has languished in less well-known journals.

It is a wonderful asset finally to have all their work on technological lock-ins put together in this one volume, and accessibly written for anyone who is interested in the topic.

I've been a long-time Microsoft user/hater, but I find most of the arguments put forward by the authors to be very compelling: When MS products receive top ratings, those products tend to dominate the market and prices fall. I'm not sure I agree with most software reviewers that MS IE is better than Netscape, but perhaps that's a personal preference.

But as I said, this book is a superb and accessible summary of the authors' work on path dependency and is a telling condemnation of BOTH sides in the antitrust suit agains Microsoft.

10 of 12 people found the following review helpful:

5.0 out of 5 stars Great Book, August 27, 1999

By A Customer

This review is from: Winners, Losers & Microsoft: Competition and Antitrust in High Technology (Independent Studies in Political Economy) (Hardcover)

There are a lot of myths about why products succeed or fail. Many claim that customers get "locked into" products simply because they arrive on the scene first even when much better products are available. Some claim that Microsoft has taken over different markets despite inferior software simply because of the monopoly that it has in operating systems. Liebowitz and Margolis provide straightforward, convincing, and imaginative evidence that these claims are false.

It is amazing how many stories like the superiority of the DVORAK keyboard hang around for years with no supporting evidence. They make for great stories, but as these authors point out they are false.

If you want to learn about how markets work, read this book.

Finally, the previous commentor's remarks about these authors being bought off is offensive and false. Liebowitz and Margolis wrote about these issues a decade before Microsoft became involved in its current legal problems. Anyone who reads this book will realize that Microsoft would have been a lot better off if they had hired them rather than the lame effort they got from the MIT business school dean.