The Microsoft Antitrust Case
A Case Study For MBA Students by Nicholas Economides* Revised April 2003

Abstract This case study discusses briefly the economic and legal issues pertaining to the antitrust case of the United States and a number of States against Microsoft.

* Stern School of Business, New York University, New York, NY 10012, (212) 9980864, fax (212) 995-4218, http://www.stern.nyu.edu/networks/, neconomi@stern.nyu.edu Copyright ©, N. Economides

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Contents 1. 2. 3. 4. 5. 6. 7. Facts ............................................................................................................................. 3 Antitrust Law On Monopolization And Attempting To Monopolize .......................... 7 Economics Of
The Court entered the consent decree as its Final Judgment on April 21, 1995.

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however, that this provision in and of itself shall not be construed to prohibit Microsoft from developing integrated products); or the OEM not licensing, purchasing, using or distributing any non-Microsoft product.” 4 Thus, the 1995 consent decree imposes two restrictions, one horizontal, and one vertical. The horizontal restriction stops Microsoft from using zero marginal cost pricing. However, it allows for quantity discounts, disregarding the fact that zero marginal cost pricing is a special case of a quantity discount contract. 5 The vertical restriction of the 1995 consent decree prohibits product bundling created by contract, but allows Microsoft to keep expanding the number and type of functions of its products, including Windows. In short, in the 1995 consent decree contractual bundling was disallowed, but technological bundling was explicitly allowed. 6 During 1997, Senator Orin Hatch (R-Utah) held congressional hearings on Microsoft that featured Microsoft’s CEO Bill Gates, Netscape’s CEO Jim Barksdale, and PC manufacturer Michael Dell, among others. Senator Hatch took the position that if present antitrust law cannot deal with various anti-competitive acts attributed to Microsoft, Congress should change or enhance the antitrust laws. 7 Sun Microsystems, Oracle, IBM, Netscape, and Novell formed