Quote of the day: “Software is a network industry with an applications barrier to entry.” UPDATED
A leading EC textbook on competition law offers the following startling insights regarding the Commission’s case against Microsoft:
Microsoft did not contest that it was dominant in the market for client PCs and the Commission found that it had abused that position by selling its PCs with a streaming media player already built in. (p.141) … Software is a network industry with an applications barrier to entry. Microsoft licenses some 93.8% of the operating systems for personal computers (PCs). Consequently, there is a big incentive for consumers to use Microsoft operating systems, so that they can communicate with more people. (p.175)V. Korah, EC Competition Law and Practice (2004). No, I’m not making this up.
UPDATE (10/03/07): Cosmo Graham shared this comment with us: “In fairness, this is from an old edition. The most recent, the 9th (only published very recently), seems very different from a quick skim. In particular, it is made clear that it is operating systems, not PCs which are in issue. The applications barrier to entry seems to have been straightened out as well on p 123. The statement about the incentive to communicate does remain - on p 121 - in the context of a general statement about network effects which latter seems unexceptionable.”
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October 2nd, 2007 at 9:26 am
sorry — am i missing something? what’s wrong with that?
October 2nd, 2007 at 9:59 am
(1) Microsoft does not sell PCs. (2) “Software” is not a network industry. Your copy of Mine Sweeper doesn’t increase in value just because I start playing it, too. (I wouldn’t. I prefer wasting my time with Desktop Tower Defense.) (3) There is an “applications barrier to entry” into the OS market, but there certainly is no such thing for “the software industry.” I don’t have to overcome the popularity of World of Warcraft to make money selling EVE Online (to choose examples of products with network effects.) (4) “Communicating with more people” has nothing to do with using “Microsoft operating systems.” I’m currently communicating with you using OSX, and the original post was sent from a machine running Ubuntu.
October 2nd, 2007 at 10:16 am
Hilarious, if hungry for more, note that the book contains a range of other funny statements on EC comp. law and econ.
October 2nd, 2007 at 12:07 pm
In the immortal words of Lisa Simpson, “I know those words, but that [paragraph] makes no sense.”
October 3rd, 2007 at 9:54 am
In fairness, this is from an old edition. The most recent, the 9th (only published very recently), seems very different from a quick skim. In particular, it is made clear that it is operating systems, not PCs which are in issue. The applications barrier to entry seems to have been straightened out as well on p 123. The statement about the incentive to communicate does remain - on p 121 - in the context of a general statement about network effects which latter seems unexceptionable.