In 2000, the Department of Justice brought a lawsuit against Microsoft, on the grounds that the company tried to monopolize operating systems and use its operating system to promote its other products. Windows, for example, was packaged with Internet Explorer, and this helped Internet Explorer replace Netscape as the leading market browser. In 1996, Netscape held 80% of the browser market according to some estimates, but by 2002, Internet Explorer had taken almost all of Netscape’s market share.3

To be sure, it seems that Microsoft was guilty of “intent to monopolize,” as defined by the antitrust laws. It is less clear that Microsoft’s behavior made consumers worse off. Netscape’s open-source spinoff, Firefox, is widely available today, as is Google’s browser, Chrome, Apple’s browser, Safari, and many others. Thus, there is considerable competition in this market. Switching to another browser is easy, but many of us don’t bother because the quality of all browsers is high. More generally, during the 1990s, consumers benefited as Microsoft prices fell and the software added many new features.

The dilemma facing the antitrust authorities is that we know the market for network goods will be dominated by a handful of firms. Thus, the question is not monopoly versus competition (in the sense of competition from many firms in the market), but rather it is one monopoly versus another. It’s not obvious that consumers are better off when Netscape has a market share of 80% than when Internet Explorer has a market share of 80%. What is important is that competition for the market is not impeded. Regulators claim that Microsoft did impede competition for the market by giving away Internet Explorer for free in a bundle with Windows. Maybe, but that is a tough claim to either prove or to refute.

Microsoft settled with the government in 2001. The agreement was that the company would give its competitors the knowledge and technologies to produce software that would interact seamlessly with Windows.

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