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Microsoft: Victim of the 'Market Share' Myth

Those who speak of 'market share' are accepting the premise that there’s a fixed hunk of wealth in the world and that it should be shared 'fairly.'

By Richard M. Salsman
Senior Policy Analyst
The Center for the Advancement of Capitalism

Judge Jackson has released his “finding of fact” in the Microsoft antitrust case, declaring the software giant to be a dangerous monopoly. Ironically, however, it is not fact that drives this conclusion, but myth.

Microsoft, in Judge Jackson's estimation, “controls” or “dominates” a large “market share,” which somehow proves that the company is looting and oppressing the public. This charge is based on a dangerous myth with a long history: the view that a company’s “market share” represents, not wealth produced by thought and effort and traded by voluntary agreement, but a static quantity of goods seized by force.

In the terms of this myth, a successful businessman is a “Robber Baron.” This term is a holdover from the centuries before capitalism, when men suffered under baronial feudalism—when property was communal, serfdom was the norm, and poverty was widespread. Under this system of looting, one man’s gain was usually the cause of another man’s loss. Wealth came to be seen as some fixed hunk of meat—something to be seized rather than produced. Success, under this system, was a measure of brutality.

But capitalism changed all that. The system of private property rights, scientific achievement, and entrepreneurial innovation brought forth a vast new production of material wealth. With capitalism should have come the recognition that wealth is created by new and better ideas, technological advances, and free trade among producers. And success under capitalism was a measure, not of brutality, but of productive ability.

But the old ideas persisted. In the 19th Century, the myth of the “Robber Baron,” the industrialist who allegedly profited by exploitation and theft, merely modernized the old feudal mistrust of wealth.

This feudal prejudice was given a new form by the academic theory of “pure and perfect competition,” which is the chief economic justification for the antitrust laws.

To academic economists and trustbusters, markets are “ideal” if each industry contains thousands of selling firms, each with little or no ability to influence prices or “market share.” A market is considered “perfect” only if each participant’s share of it is tiny. In this theory, a large market share is presumed to be a huge defect—a result, not of "perfect" competition, but of some failure or obstruction of competition.

Since the theory of "perfect competition" sets up impossible conditions that real-live markets are nevertheless supposed to exhibit, market "failure" under this theory is unavoidable. Since, in reality, most markets do have successful companies that have earned large market shares, this business activity is repeatedly interpreted as abusive, exploitative, anticompetitive. Trustbusters are then said to “fix” such defects by regulating market shares.

A "market share," in this view, is a fixed hunk of wealth, a kind of natural resource that no one has earned or produced. The ideal allocation of these "market shares," therefore, is an equal distribution—whereas an un-equal distribution must imply that one producer has unfairly seized the “market shares” that rightfully belong to others.

This is the theory under which Microsoft is charged with being a “monopolist”—i.e., a seller capable of "forcing" others out of the market—because it “controls” a 90% “share” of the market for operating systems used in personal computers. Judge Jackson claims the firm used its “monopoly power” to force customers to accept and buy new features in its Windows 95 platform.

But no supplier or customer has ever been forced to deal with Microsoft. The firm’s “market share” was not stolen. Indeed, Microsoft made the market possible by producing the goods. There was no market for Windows until Microsoft wrote the code for it. That market was not some pre-existing source of wealth to be seized; it was created by the company’s production of a useful product.

The same is true of software applications. The “market share” of Microsoft’s Internet Explorer was not gained by somehow seizing Netscape’s customers. It was gained by enticing some of those customers—and millions of new ones—with the price, quality, and convenience of Microsoft’s product.

Microsoft is being painted as a new “Robber Baron” that has somehow seized the static “shares” of other people’s wealth. But in fact its “market share” is just a result of the company producing and trading its own property. This is the “crime” for which Microsoft is now facing punishment.

The view of Microsoft’s actions as a crime rests on the old feudal myth of seized wealth—to which an egalitarian regulation of market shares is presented as the only just solution. But the purveyors of this myth have reversed the real facts. By smearing the producers of wealth as looting “Robber Barons,” they are, in reality, unleashing the real robber barons: the prosecutors, judges, and jealous competitors who want to seize Microsoft’s property and carve up the market share it has earned.

Richard M. Salsman is President and Chief Market Strategist at InterMarket Forecasting, an economic forecasting and investment advisory firm.

 

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