"DOS Kapital: Has Antitrust Action Against Microsoft Created
Value in the Computer Industry?"
BY: GEORGE BITTLINGMAYER
University of California at Davis
THOMAS HAZLETT
University of California at Davis
Document: SSRN Electronic Library Document Delivery:
http://papers.ssrn.com/paper.taf?abstract_id=99832
Date: June 1998
Contact: GEORGE BITTLINGMAYER
Email: Mailto:gnbittlingmayer at ucdavis.edu
Postal: University of California at Davis
Graduate School of Management
Davis CA 95831 USA
Phone: (530)752-2277
Fax: (530)752-2924
Co-Auth: THOMAS HAZLETT
Email: Mailto:hazlett at primal.ucdavis.edu
Postal: University of California at Davis
Department of Agricultural and Resource Economics
Room 3103
Social Sciences and Humanities Building
Davis CA 95831 USA
ABSTRACT:
The effects of antitrust policy are illuminated in an extensive
series of enforcement actions against Microsoft. As antitrust
intervention promises to benefit a broad spectrum of publicly
traded firms, stock market reactions to enforcement "events"
constitute forecasts of the net benefits created for such firms.
Firms manufacturing complements to Microsoft operating systems
(computer hardware, semi-conductors, microprocessor chips,
peripheral equipment, network systems, and applications
software) would benefit from policies improving the operating
system around which the industry is organized. Similarly,
Microsoft's competitors allege that vertical foreclosure has
injured them, and that they would benefit from legal remedies
opening the marketplace to easier entry. Hence, effective
antitrust action against Microsoft should benefit suppliers of
both complements and substitutes. However, in reviewing share
price reactions to antitrust enforcement actions by the Federal
Trade Commission and the Department of Justice during the
1991-97 period, we find that abnormal returns for Microsoft and
a computer industry index of 159 firms (excluding Microsoft)
were negatively correlated with antitrust enforcement events:
Stronger antitrust measures lead to declining equity values in
the sector. Thus, financial markets reveal compelling evidence
against the joint hypothesis that (a) Microsoft engages in
anti-competitive conduct, and (b) antitrust policy is likely to
impose a remedy producing net efficiency gains.
JEL Classification: L1, L4, L5