Whatever the final outcome of the Justice Department's antitrust battle
against Microsoft Corp., the war has been fought over economics concepts that
don't really jibe with the realities of the software marketplace.
That is a key contention by economists Stan J. Liebowitz and Stephen E.
Margolis in their book "Winners, Losers & Microsoft" (The Independent Institute,
$29.95, hardback), subtitled "Competition and Antitrust in High Technology."
Some of the concepts used as judicial hammers against Microsoft have included
network effects, path dependence and lock-in. If you base part of your buying
decision on how many other people already are using a particular product, that is
a network effect. Path dependence has several confusing definitions, the authors
explain, but sometimes denotes "a failure of the market system to select good
outcomes." As for lock-in: "The essence of the lock-in claim is that inferior
products are 'protected' from superior newcomers."
The two authors are neither apologists nor flag wavers for Bill Gates.
Instead, they are die-hard free-market proponents. "The winners in the high-tech
world have won not by chance, but rather by the choices of consumers in an open
market," they write.
"We find that a firm can succeed in the software market only when its product
is better than the competitor's." That goes for Microsoft, too, they note. "When
a Microsoft product is judged the best available, it displaces incumbent
standards and dominates its product segment. When another firm's product is
judged the best available, the Microsoft product fails."
In other words, quit whining about being "crushed" by Microsoft or other big
companies. Hit the market with better products. Then, keep innovating.
This book, it should be emphasized, deals more with market success and
failure than with Microsoft. It should be informative and instructive for almost
anyone concerned with selling high-tech products. Some chapters are easy and
entertaining reading. Others necessarily descend into charts, graphs and
technicalities that only an economist could love.
One of the best chapters focuses on the QWERTY keyboard and what happened
after August Dvorak patented an alternative key arrangement in 1936. Dvorak's
inability to dethrone QWERTY continues to be cited as a classic example of
lock-in: Failure on the part of the general public to change to a better
approach. Yet it's not lock-in, the authors insist. In their research, they
"discovered that the evidence in favor of a Dvorak advantage seemed to be very
unscientific in character and came mostly from Dvorak himself."
According to the authors, "If the concept of lock-in applies anywhere, it
ought to be to software." Users could be particularly locked in by various
compatibility and backward-compatibility issues. And it sometimes may be cheaper
to stick with older products known to be inferior than to adopt new products that
are better.
But the software market tends to resist what it views as pernicious lock-in.
Good software replaces bad. And market leadership changes often occur with little
inertia. In fact, they add, "In software markets, the speed at which serial
monopolists replace one another might actually be greater than in most 'ordinary'
markets."
