Thursday, June 19, 2003

Connecticut v. Oracle: Reading Between the Lines

In reading Connecticut's antitrust complaint against Oracle, the following paragraph is worth noting, because it goes to the heart of antitrust philosophy. The paragraph in question discusses entry into the market Oracle and PeopleSoft are competing in:
Entry into the relevant markets by a new enterprise software provider would be extremely difficult, time-consuming, and expensive. The enterprise software industry serves enterprises through complex software that is often customized to serve a particular customer’s specific needs. Thus, costs and risks associated with switching providers can be extremely high. Moreover, enterprises will be reluctant to switch to a smaller or midsize financial or human resources software provider with untested scalability, performance and international effectiveness.
Notice the complaint does not say market entry would be "impossible." This is an important distinction. A "monopoly," classically defined, means that there is some barrier which effectively prevents any entry by a new competitor. The reason for this is quite simple: a monopoly once meant the governor was erecting some barrier to prevent marketplace entry. For example, in 16th-Century England, the Crown would often give a merchant exclusive rights to a line of commerce, thus legally excluding any other competitor who might try to enter the market. That is a monopoly. What we deal with in antitrust today, in contrast, is dominant private firms that lack these sorts of legal insulation.

In reading the paragraph above, one clearly understands that Oracle and PeopleSoft compete in a market where a new entrant can't simply setup shop tomorrow and be successful. Like most technology markets, this market requires a new entrant earn customers over a period of time. But Connecticut refuses to be that patient. Acting as a customer here, they want some guarantee that there will be a new entrant now, or they won't take the risk of allowing Oracle to buy PeopleSoft. That—not the prospect of a "monopoly"—is what drives this and every other antitrust case. In its modern application, antitrust is a glorified form of risk-spreading. A customer feels their short-term interests will be inconvenienced by the acts of a producer, so rather than risk that inconvenience, they use antitrust to place the blame squarely on the producer by infringing on his property rights.

The Golden Rule of antitrust is: The consumer is never responsible for their own decisionmaking. If a consumer makes a bad decision, it's because some producer is acting "anti-competitively."

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