Exclusivity and Tying in U.S. v. Microsoft: What We Know and Don’t Know

Competition Policy and Antitrust

Article Snapshot


Michael Whinston


Journal of Economic Perspectives, Vol. 15, No. 2, pp. 63-80, 2001; reprinted in Recent Developments In Monopoly And Competition Policy, edited by George Norman, Cheltenham: Edward Elgar, 2008


This paper looks at how Microsoft’s deals with computer suppliers affected competition.

Policy Relevance

Looking closely at the effects of tying on consumers would help improve competition policy decisions.

Main Points

  • In the antitrust suit against Microsoft, Microsoft was said to have injured competition from Netscape in two ways:
    • By integrating Microsoft’s competing product, Explorer, into Microsoft’s popular operating system.
    • By making exclusive deals with computer suppliers, Internet Service Providers (ISPs) and others, insisting that they display Explorer on consumer’s screens.

  • The “Chicago School” of economics showed that sometimes exclusive contracts help consumers, but later theories showed that in some cases they do not.

  • In simple examples, when a producer signs an exclusive deal with a buyer, it limits the buyer’s dealing with a rival product. Netscape’s software was a complement to, not a rival product, with Microsoft’s software.

  • “Tying” happens when a firm requires customers to purchase product B when they buy product A. Sometimes it benefits consumers, but not in every context.

  • Tying is more likely to cause harm when network effects operate. Network effects occur when a product becomes more useful to consumers as more other consumers also use it. Computer operating systems like Microsoft’s Windows are an example.

  • Microsoft saw Netscape as a threat, and probably did use its exclusive contracts to try to exclude Netscape.

  • It is hard to tell whether consumers were harmed by Microsoft’s practices or not.

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