Microsoft Confidential ANTITRUST POLICY By: V.KARTHIK

Microsoft Confidential AGENDA Antitrust policy Objectives of Antitrust policy Why promote competition Anti-competitive practices Federal Antitrust Laws in U.S Competition Act in India Background of India Merger Policy Microsoft-Yahoo merger case History of cases Microsoft cases Criticisms of Antitrust law

Antitrust policy

Objectives of Antitrust policy

Why promote competition

Anti-competitive practices

Federal Antitrust Laws in U.S

Competition Act in India

Background of India

Merger Policy

Microsoft-Yahoo merger case

History of cases

Microsoft cases

Criticisms of Antitrust law

Microsoft Confidential ANTITRUST POLICY ANTITRUST LAW Government actions designed to promote competition among firms in the economy. Antitrust law also known as competition law, has three main elements : 1) prohibiting agreements that restrict free trading and competition between business entities. 2) banning abusive behaviour by a firm dominating a market, or anti-competitive practices that tend to lead to such a dominant position. 3)supervising the mergers and acquisitions of large corporations. Transactions that are considered to threaten the competitive process can be prohibited altogether. TRUST A group or collection of firms who agree to coordinate efforts for the purpose of restricting output and raising prices/profit. Also known as cartels

Microsoft Confidential Objectives of Antitrust policy

Microsoft Confidential Why promote competition

Microsoft Confidential “ Having a monopoly is not illegal It all depends on how you get the monopoly”

Microsoft Confidential Anti-competitive practices Product bundling Predatory Pricing Exclusive dealing PROFITS by reducing competition Price fixing Collusion Refusal to deal (Group boycott) Anti-competitive practices 2007 : British Airways and Korean Air Lines fined by regulators for price-fixing in fuel surcharges ,cargo & passenger rates 2005 : WAL-MART accused of predatory pricing by small retailers & labour unions

Microsoft Confidential Frequently asked questions ? ? The gasoline stations in my area have increased their prices the same amount and at the same time. Is that price-fixing? ? ? ? ? ? ? ? I operate two stores that sell recorded music. My business is being ruined by giant discount store chains that sell their products for less than my wholesale cost. I thought there were laws against price discrimination, but I can’t afford the legal fees to fight the big corporations. Can you help? I operate two stores that sell recorded music. My business is being ruined by giant discount store chains that sell their products for less than my wholesale cost. I thought there were laws against price discrimination, but I can’t afford the legal fees to fight the big corporations. Can you help?

Microsoft Confidential Inefficiency of monopoly - By Price Fixing Demand Price Qty

Microsoft Confidential Federal Antitrust Laws

Microsoft Confidential Competition Act in India Finance Minister, P.Chidambaram (2003) highlighted the need to have a strong legal system and said “ A world class legal system is absolutely essential to support an economy that aims to be world class. India needs to take a hard look at its commercial laws and the system of dispensing justice in commercial matters.” With the zeal Government went ahead and enacted the Competition Act 2002

Microsoft Confidential Background of India Competition (Amendment) Act, mid 2008 Competition Act, 2002 MRTP Act, 1969 Monopolies & Restrictive Trade Practices Act The Monopolies and Restrictive Trade Practices Act, 1969 focused in curbing monopolies 1999: A committee (CCI-Competition Commission of India) was setup by govt to examine the MRTP Act 1969 & for shifting the focus of the law from curbing monopolies to promoting competition Following which the Competition Act , 2002 was enacted and notified in January 2003. .

Microsoft Confidential Market share Google has the lion's share of the search market SOURCE : As of Jan 2008 Merger Policy Govt has to decide whether a merger reduces competition in the mkt

Microsoft Confidential MICROSOFT-YAHOO MERGER MICROSOFT :"The combination of Microsoft and Yahoo will create a more competitive marketplace by establishing a compelling No. 2 competitor for Internet search & online advertising" Google is prevented by the antitrust laws from buying Yahoo or buying this business from Yahoo GOOGLE : is concerned that Microsoft can "unfairly limit the ability of consumers to freely access competitors' email and instant messaging services. Microsoft + Yahoo = Antitrust Microsoft would need approval from the Federal Trade Commission (FTC) in the U.S. & the Competition Commission in the EU for the deal to pass through Google and a Microsoft-Yahoo would control 80% to 90% of the search market OLIGOPOLY

MICROSOFT :"The combination of Microsoft and Yahoo will create a more competitive marketplace by establishing a compelling No. 2 competitor for Internet search & online advertising"

Google is prevented by the antitrust laws from buying Yahoo or buying this business from Yahoo

GOOGLE : is concerned that Microsoft can "unfairly limit the ability of consumers to freely access competitors' email and instant messaging services. Microsoft + Yahoo = Antitrust

Microsoft would need approval from the Federal Trade Commission (FTC) in the U.S. & the Competition Commission in the EU for the deal to pass through

Google and a Microsoft-Yahoo would control 80% to 90% of the search market OLIGOPOLY

Microsoft Confidential HISTORY OF CASES Standard Oil : Monopolized the oil refining industry illegally. In 1911 it was broken into separate entities (Exxon, Mobil, Chevron, Amoco) IBM : U.S Govt brought antitrust action against IBM in 1969 because of its dominance in mainframe computer mkt.Govt withdrew the case later in 1982 when it faced stiff competition from smaller computers, Apple Computers etc AT&T : U.S Govt took action against AT&T in 1970s as it was the only significant supplier telephone service. It was broken apart & had to compete with MCI & Sprint. This increase in competition lowered the cost.

MICROSOFT CASES European Union Microsoft antitrust case Microsoft has been hit with an €899m ($1.4bn) fine for failure to comply with European regulators' demands to end allegedly anti-competitive business practices.MS failed to provide information necessary for competing networking software to interact fully with Windows desktops and servers & also failed to unbundle Windows media player from Windows Govt’s interest in Microsoft's affairs had begun in 1991 with an inquiry by the FTC over whether Microsoft was abusing its monopoly on the PC operating system market 1998 – Case filed against MS when it bundled Internet Explorer along with its OS. This restricted the mkt for competing web browsers( Netscape navigator etc.). Order was reversed in 2001 when MS agreed to provide billions of software & services to public schools United States Microsoft antitrust case

Microsoft has been hit with an €899m ($1.4bn) fine for failure to comply with European regulators' demands to end allegedly anti-competitive business practices.MS failed to provide information necessary for competing networking software to interact fully with Windows desktops and servers & also failed to unbundle Windows media player from Windows

Microsoft Confidential MERGER & ACQUISITION POLICY Horizontal v/s vertical mergers Monopolization Horizontal v/s vertical restraints

Microsoft Confidential Antitrust Paradox : Original intention of antitrust laws was consumer welfare & protection of competition rather than competitors Paradox of antitrust enforcement was that legal intervention artificially raised prices by protecting inefficient competitors from competition . Only a few acts should be prohibited, namely price fixing, mergers that create monopolies & pricing predatorily, while allowing practices such as price discrimination The late Nobel economist believed that Antitrust laws do far more harm than good “ Antitrust case against Microsoft set a dangerous precedent that foreshadowed increasing government regulation of what was formerly an industry that was relatively free of government intrusion and that future technological progress in the industry will be impeded as a result” Changed views overtime Antitrust laws prevent firms from actions that may benefit society due to fear of antitrust violations Condemns the Sherman Act as stifling innovation and harming society "No one will ever know what new products, processes, machines, and cost-saving mergers failed to come into existence, killed by the Sherman Act before they were born” Robert Bork Milton Friedman Alan Greenspan Criticisms of Antitrust Laws

Antitrust Paradox : Original intention of antitrust laws was consumer welfare & protection of competition rather than competitors

Paradox of antitrust enforcement was that legal intervention artificially raised prices by protecting inefficient competitors from competition .

Only a few acts should be prohibited, namely price fixing, mergers that create monopolies & pricing predatorily, while allowing practices such as price discrimination

The late Nobel economist believed that Antitrust laws do far more harm than good

“ Antitrust case against Microsoft set a dangerous precedent that foreshadowed increasing government regulation of what was formerly an industry that was relatively free of government intrusion and that future technological progress in the industry will be impeded as a result”

Changed views overtime

Antitrust laws prevent firms from actions that may benefit society due to fear of antitrust violations

Condemns the Sherman Act as stifling innovation and harming society

"No one will ever know what new products, processes, machines, and cost-saving mergers failed to come into existence, killed by the Sherman Act before they were born”

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