The Hindu Business Line : EU keeps an eye on market power

THE European Union (EU) has decided to levy a fine of about $613 million (Rs 2,820 crore) on Microsoft. For a company that is sitting on approximately $50 billion (Rs 2,30,000 crore) in cash, this is not a big deal. There is probably that much in loose change in Gates' wallet. However, the implications of the EU decision on how Microsoft can compete in the European market are rather profound and it also sends a signal to others.

The EU has held that Microsoft abused its market power in the market for servers (mid size computers) and for multimedia software. So, apart from the fine, Microsoft has been ordered to supply technical information about its Windows operating system so rivals can develop server software that would compete with Microsoft's own server software. Also, Microsoft has to sell a version of its Windows operating system without its Media software bundled in, so rivals such as Real Networks have a chance of selling their systems to customers. Microsoft, of course, has the right to appeal and has announced its intent to do so. This case would drag on for some time.

Having a large market share, per se, does not tantamount to being a monopolist. What regulators like to see is how you use that power in the market place. When companies set prices in a predatory fashion allowing little room for rivals to thrive, or stipulate conditions that prevent their rivals from reaching your customers, then regulators need to step in. Quite often, the debates revolve around what is the `market' for the purposes of defining a market share, and both rivals and customers are questioned before a decision is made.

The issues that EU was dealing with are similar to those that Microsoft faced in the US in 2001. The issues of `bundling' products and predatory pricing were also at the top of the agenda there but Microsoft came to a settlement with the US Government and many felt that the company got off lightly. The pubic marvelled at it for not only being a ruthless competitor but also for managing the anti-trust authorities quite effectively. Clearly, Microsoft's charm did not work in Europe. Many rivals such as Sun Microsystems are now pleased by the EU decision having felt cheated after the case fizzled in the US. The EU decision is only applicable within its jurisdiction.

The purpose of a competition policy is to manage the intensity of competition. Thus, the policies should deal with cartels and what to do about them, standards setting issues, licensing, market access issues, mergers, and so on. The ideological difference between industrial policy and competition policy is that the latter affirms that it wants healthy competition within the country and sets up the framework and rules to make it happen. The guidelines that emerges from such decisions gives us clues to the competition policy that is evolving within the EU.

The Microsoft case is the second major instance in recent times where the EU has taken a different stance from the US.

Keeping a check on the market power of a company falls under the larger rubric of competition policy. It is not just a public policy issue; companies are also interested in knowing the rules of competition and how they would be enforced. A key element of globalisation is the interdependence of economies, and this extends to markets. As firms compete across different markets and have different objectives for these markets, they would like to understand the playing field. At present, they face a plethora of various national policies which create a variety of challenges. While trade policies deal with issues between nations, competition policy regulates private conduct within national borders.

Setting anti-trust guidelines is within the rights of sovereign nations and it raises two relevant issues. The public policy issue is one of control of major corporations. Most major corporations are global and operate in dozens of countries. Their reach in terms of resources makes them very powerful and makes it difficult for one country to control them. From this perspective, it is useful to have several regulators independently viewing the activities of the corporations so that if they slip by one, they may still get stopped by another regulator elsewhere.

By the same token, since the multi-national corporations have operations and alliances across the globe, there would need to be some level of coordination between regulators who are active in regulating the behaviour of these corporations. Otherwise, the corporations are faced with a multitude of countries which want to enforce their own regulations.

The EU, the US and Japan are the major developed economies of the world with extensive experience of dealing with the major corporations. One hopes that even if they do not agree on a common anti trust policy, they would at least coordinate with each other.

The decision of the EU has been criticised by many in the US as an example of bureaucrats who are too powerful and how the EU is behind the times in terms of understanding the needs of major corporations. A US senator is reported to have said, ``The EUs proposed actions against Microsoft amount to a hostile act with severe consequences for the global economy.'' This is understandable since the senator represents Washington State in the US senate, and Microsoft's employees are important voters.

But the EU's decision on Microsoft comes at a time when the US has consciously adopted a policy of unilateralism in political and economic matters and has been busy sniping at Europe. First, the Secretary of Defence, Mr Donald Rumsfeld, derided those countries in Europe who opposed the invasion of Iraq as `Old Europe.' The suggestion was that they were not moving with the times. On top of it, when the Spaniards last month overthrew their pro-US government just days after the terrorist bombing in Madrid, the Speaker of the US House of Representatives responded by accusing the Spaniards of having succumbed to terrorism. Knee-jerk comments by senior politicians do not create an environment conducive for cooperation.

Perhaps, we are in for more instances of the US and the EU wanting to go their own respective ways. It is perhaps not a bad thing. Former colonies, who were at the receiving end of divide and rule policies, may well think it good strategy to foster this division among the developed so the developing countries can get a respectful hearing of their views at international fora.

(The author is professor of international business and strategic management at Suffolk University, Boston, US. His Internet address is cgopinat@suffolk.edu)

More Stories on : Information Technology | Insight | Marketing | American Periscope

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Calls go cheap

SC and Parliament

Revisiting the 1980s and the vital groundwork

The idea of India

EU keeps an eye on market power

Evolution of the `swadeshi' idea

Unionised glamour

Index funds have a `weighty' problem

`Daewoo acquisition, a function of reforms' — Mr Ratan Tata, Chairman, Tata Motors

Brands are expected to behave properly, always

Management education

US Senators