Continued EU Idiocy

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The European Union (EU) regulators and the EU Court of First Instance are a bunch of idiots in their rulings on Microsoft Corporation (ticker symbol MSFT).

They show clearly that they stand foursquare against (a) freedom, (b) the hapless consumer who is being harmed by their rulings, and (c) the truth, which is also a casualty. They know nothing. They say nothing that makes any sense.

The judgment handed down this week was for the case on appeal from 2004. It upheld most of the earlier rulings. The case will probably be appealed again. At present, the AP article informs us that the judgment tells Microsoft "to share communications code with rivals, sell a copy of Windows without Media Player and pay a $613 million fine…"

The pretext for these actions is that Microsoft is a monopoly that is harming both its rivals and its customers. The whole case is so idiotic that it challenges belief in even a small degree of rationality among the EU regulators and officials responsible. The case demonstrates the total ineptitude of government’s benighted attempts to regulate markets in the name of competition.

In the 2004 ruling, the issue was the Microsoft Media Player which is bundled with Windows XP or is a free add-on. Two alternatives are Real Network’s player and Apple’s Quicktime, which can easily be downloaded for free. Why can’t the consumer decide among these, or use one or more of them if he sees fit? Why must the customers of Microsoft be prevented from buying what Microsoft offers them as a package?

Does Microsoft not own what it produces? Why must it turn code over to rivals? Isn’t it bad enough that producers have to give up a large share of their income to strangers? Now a company must directly work for its rivals! By all means, ratchet up the degree of insulting slavery that one must endure.

At the time of the first ruling, one article reported: "Analysts say by forcing Microsoft to offer a version of Windows XP without Media Player, consumers could pay higher costs." This is true. How could it not be true? Windows with Media Player was the product that most consumers preferred. By taking away that package as an option, they could only be made worse off. A computer consultant pointed out that retailers would have to allocate twice as much space to selling the two pieces: "If it were to be obliged to offer versions both with and without Media Player, then that would mean we would probably have double the number of consumer PC configuration in our shops." Space costs money. Furthermore, more time and effort are required among consumers to buy two pieces and install them.

A grinning EU Competition Commissioner, Mario Monti, said at the time: "Today’s decision restores the conditions for fair competition in the markets concerned and establishes clear principles for the future conduct of a company with such a strong dominant position." In these few words, Mr. Monti established his credentials as the resident EU idiot-in-charge. Competition is achieved by open markets in which anyone can enter and compete and in which the state creates no unfair advantage or handicap. There is no such thing as "fair competition" other than the market being open, and no anti-trust decisions are needed to keep markets open. All that is needed is that property be protected, which is the opposite of the decision that Mr. Monti applauded.

But his stupidity is now matched by both the court’s and his replacement, Neelie Kroes. Showing her grit and steely determination, she said: "I will not tolerate continued noncompliance." Give ‘em hell, Neelie. European consumers should be thankful to have such a staunch protectress on their side.

She added: "The court has confirmed the Commission’s view that consumers are suffering at the hands of Microsoft." How is Microsoft inflicting this punishment? Does it force anyone to buy its bundled product? Does it forcibly prevent anyone from using Quicktime? But Ms. Commissioner, is it not true that the EU directly is punishing the consumer by messing around with Microsoft? Who will bear the humongous legal fees and fines, at least in part, if not the consumer? Who will lose out from the chill on future innovation if not the consumer? And isn’t the EU directly responsible for all of this harm?

What utter hypocrisy and stupidity are on parade here.

Are we supposed to pity Microsoft’s rivals? Are we supposed to reward their incompetence? The court opined that selling media software with Windows had damaged rivals. If it was a successful product, what else could we expect but that rivals should be damaged? It is a good sign that they have been damaged. It means that customers were benefited. The rivals do not own the customers. They cannot make them buy their products, not unless the EU intervenes and tries to raise Microsoft’s costs.

This, then, is what fair competition actually means. It means penalizing the good guys so that the bad guys can stay in the game. Now this is done in golf to some extent, in horse racing, and in drafting players in some sports, presumably in a voluntary manner for reasons of enhancing the enjoyment of the games, but market competition is not a sports league or a sporting contest. It is a case of consumers saying "aye" or "nay" to products. They have the say. And there is certainly not going to be market competition with a bunch of regulators instituting idiotic lawsuits that hamstring companies and, nevertheless, take decades to adjudicate. And, of course, we can hardly expect EU courts to rule against EU commissions routinely any more than we can expect the U.S. Supreme Court to diminish the powers of the national government of the U.S.

"The mood at EU headquarters was one of elation and the court’s decision was hailed as a big victory for the EU’s competition policy and for consumer rights." I can believe it about the mood. I can well imagine a slew of EU lawyers and bureaucrats, narrowly focused on beating Microsoft, personally involved and committed over several years, who have found vindication in their ill-chosen life’s work. Their dedication and toil have paid off. They have a victory for their power, that is, their "competition policy." Now they can find other industries to meddle in. They can wreck other markets.

They can congratulate themselves with the illusion that this is a victory for "consumer rights" when it is a defeat for European consumers, another nail in the coffin that is burying competition in European markets and foreclosing the freedom of consumer choice. Perhaps the European consumer will be responsive to pirated versions of what their regulators tell them they may not buy because they are being damaged by buying them.

Very few products are not bundles of characteristics. Dental floss is a spool of thread, but the packages vary from round to rectangular. Some shaving cream cans have bottoms that rust and stain, while others have plastic rims. Automobiles are bundled with batteries, tires, and windshield wipers. Why is a thing like a media player any different?

Obviously, it is big bad Microsoft that is the issue. Why is it the issue? Because it is a convenient target with a large market share. The consumer and rivals are not the issue, all the rhetoric notwithstanding. EU regulators look around for ways to enhance their positions, power, and prestige. They are financed by tax dollars and can afford to take on cases that no one else would go near, including Microsoft’s rivals. The potential payoff to the regulatory agency is very large. The more elated they are, the more sure we can be that the consumer has had little to do with anti-trust policy except providing a necessary ingredient in making an anti-trust case.

The EU case against Microsoft shows us government of the bureaucrats, for the bureaucrats, and by the bureaucrats.

Michael S. Rozeff [send him mail] is a retired Professor of Finance living in East Amherst, New York.

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