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Winners, Losers & Microsoft: Competition and Antitrust in High Technology Paperback – 15 Mar 2001

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Product details

  • Paperback: 325 pages
  • Publisher: Independent Institute,U.S.; Revised edition (15 Mar. 2001)
  • Language: English
  • ISBN-10: 0945999844
  • ISBN-13: 978-0945999843
  • Product Dimensions: 15.2 x 1.9 x 22.9 cm
  • Average Customer Review: 4.0 out of 5 stars  See all reviews (1 customer review)
  • Amazon Bestsellers Rank: 2,378,275 in Books (See Top 100 in Books)

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In Winners, Losers and Microsoft, two top economists punch some big holes in the government's antitrust case against the software behemoth. Stan J. Liebowitz and Stephen E. Margolis argue that government lawyers are wrong to say that consumers are being forced to accept inferior standards and high prices because of Microsoft's hegemony.

With some well-documented and original research, the authors conclude that Microsoft is as successful as it is for a simple reason: good products win. "Whether they are lowly mousetraps or high-tech networks, better products prevail in the marketplace. People choose what they want, and what they want survives, at least for a while", they write. The authors also challenge the economists who believe that when it comes to technology, inferior standards get locked in because of unfair corporate actions or irrational consumer behaviour. Through cogent analysis, Liebowitz and Margolis tear apart the two key examples used by these other economists: the VHS videocassette format and the so-called QWERTY typewriter keyboard layout. The authors argue that those formats dominate today because they truly were as good as, if not better than, their competitors, the Beta videocassette and Dvorak keyboard. While most of the book is theoretical and aimed toward those interested in public policy and economics, Winners, Losers and Microsoft can also be an eye-opener for anyone who wants to learn more about the antitrust case against the company. --Dan Ring, --This text refers to an out of print or unavailable edition of this title.


"For the rest of us, it’s not too late to learn, as well as be entertained by, the Liebowitz-Margolis explanation." -- Armen A. Alchian, professor of economics, University of California, Los Angeles

"Judges, economists, or journalists who discuss technology lock-in without first dealing with [this] critique should have their wrists soundly slapped." -- The Wall Street Journal

"Leibowitz and Margolis show with data—not politically correct illogic—that the market, not the government, was right." -- T. J. Rodgers, chairman and CEO, Cypress Semiconductor Corporation

"The[se] arguments, such as their history of software applications, will be of interest to executives in virtually any field." -- Upside

"This excellent volume is recommended for academic and professional collections." -- Choice

Inside This Book (Learn More)
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In laissez-faire economies, resources are allocated by the independent decision-making of firms and individuals-what we often call the free market. Read the first page
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2 of 2 people found the following review helpful By A Customer on 26 Nov. 2001
Format: Hardcover
Leibowitz and Margolis set out to debunk one theory: the "network effect", whereby better products are kept from success because everyone is using a dominant but inferior one.
But, the authors are economics professors, so they set about this with meticulous citiations from references, which means this book is not terribly light in tone. Also they spend some time complaining that not enough people follow their academic work and knocking alternative positions. However, the utter destruction in the first few chapters of popular myths about QUERTY and Betamax makes for entertaining reading.
Turning to the book's main topic, the software market, the authors look at various points in time and functionality where Microsoft is not dominant, and what happened next in each case. I do not feel that they give sufficient weight to the effects of fear and branding in this marketplace, but, in line with their central thesis, they do show that Microsoft don't always win through dominance. (Think Money vs Quicken where they didn't win, or Excel versus Lotus, where they beat an incredibly dominant competitor, and also won on a non-Microsoft platform (Mac)).
The choice of magazine review results as the objective judge of quality is questionable, since reviewers can be swayed by hype, fear, marketing, etc., just like customers, but I think on balance this must be the best source of independent data that anyone has to work with.
If you start off as a Microsoft-hater, I think you will hate this book too, as an example of establishment lies and distortion. If you admire Microsoft or are neutral, then the data presented will surely make the case.
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Most Helpful Customer Reviews on (beta) 18 reviews
22 of 23 people found the following review helpful
Brilliant debunking of current antitrust law 20 Mar. 2002
By GUEST ACCOUNT - Published on
Format: Paperback
Forget Microsoft. This book will make you doubt everything you've ever been taught about lock-in, bundling, and the ease with which market dominance can be abused.
But don't forget about Microsoft entirely--the book makes clear that the conventional wisdom about how the company achieved dominance could lead to "remedies" that would have a terrible effect on the software market as a whole--inevitably dooming winners to constant hamstringing or worse in order to enforce an artificial measure of competition.
The movie puts the lie to much that has been said about Microsoft by its critics, competitors, and even its advocates. Certainly no one connected to Microsoft has made such a devastating rebuttal of the charges against it. This book is a must-read for those interested in the outcome of that case.
10 of 12 people found the following review helpful
Great Book 27 Aug. 1999
By A Customer - Published on
Format: Hardcover
There are a lot of myths about why products succeed or fail. Many claim that customers get "locked into" products simply because they arrive on the scene first even when much better products are available. Some claim that Microsoft has taken over different markets despite inferior software simply because of the monopoly that it has in operating systems. Liebowitz and Margolis provide straightforward, convincing, and imaginative evidence that these claims are false.

It is amazing how many stories like the superiority of the DVORAK keyboard hang around for years with no supporting evidence. They make for great stories, but as these authors point out they are false.

If you want to learn about how markets work, read this book.

Finally, the previous commentor's remarks about these authors being bought off is offensive and false. Liebowitz and Margolis wrote about these issues a decade before Microsoft became involved in its current legal problems. Anyone who reads this book will realize that Microsoft would have been a lot better off if they had hired them rather than the lame effort they got from the MIT business school dean.
10 of 13 people found the following review helpful
It's about time this work is made available for everyone. 14 Oct. 1999
By A Customer - Published on
Format: Hardcover
Liebowitz and Margolis have done research on intellectual property issues for over two decades. Their work on new technologies began over a decade and a half ago. Their piece on the Fable of the Keys, was the lead article in the Journal of Law and Economics in 1990. Unfortunately, their other work on path dependency has languished in less well-known journals.
It is a wonderful asset finally to have all their work on technological lock-ins put together in this one volume, and accessibly written for anyone who is interested in the topic.
I've been a long-time Microsoft user/hater, but I find most of the arguments put forward by the authors to be very compelling: When MS products receive top ratings, those products tend to dominate the market and prices fall. I'm not sure I agree with most software reviewers that MS IE is better than Netscape, but perhaps that's a personal preference.
But as I said, this book is a superb and accessible summary of the authors' work on path dependency and is a telling condemnation of BOTH sides in the antitrust suit agains Microsoft.
5 of 6 people found the following review helpful
An incisive book shedding light far beyond the MSFT case 26 Aug. 2001
By Max More - Published on
Format: Paperback
This book is unfortunately titled as it is really primarily about bringing real data and rigor to bear on many of the conventional "stories" about the economics of the new economy, rather than dwelling on the Microsoft antitrust situation. Clearly, the new economy tends to be characterized by more network effects, increasing returns to scale, and general "winner-take-all" effects than the historical economy. However, certain stories about early lock-in effects of technologies that are inferior, but that by luck got the early lead, have been uncritically passed from author to author. Examples are the QWERTY keyboard, VHS vs Betamax, Windows vs Apple, etc. Liebowitz and Margolis show that most of these stories do not hold up under close examination -- that in fact, these are not examples of the market failing to take the "right path". Actually, the market generally seems to get it right. This book is also the best we have seen in its treatment of the overall economics of information technology standards.
14 of 19 people found the following review helpful
Fascinating and accessible yet sophisticated economics 14 Jun. 2000
By Stephen M. Bainbridge - Published on
Format: Hardcover
Leibowitz and Margolis tackle one of the central problems in modern antitrust economics: Can inferior products prevail in competition? If so, can the producer of such products achieve a monopoly? Standard neoclassical economics denies that either outcome is possible. Economic evolution tends to favor efficient equilibria, while inefficient local equilibria tend to become extinct. Two fashionable economic theories have been advanced, however, which claim that inferior products can not only prevail in competition but also achieve monopolistic status.
Path dependence claims that inefficient local equilibria can persist over time. Initial conditions, which may be determined by chance or other non-economic forces (such as political interests), direct the system down a particular path. Subsequent deviations from that path may be precluded as too costly, even if there are more desirable or efficient alternatives available. Where the cost of reversing the initially chosen starting point or conditions is especially high, an inefficient equilibrium may result that resists correction by market forces.
Network externalities is the other key element of the inferior product lock-in story. Some products become more valuable as the number of persons using them increases. Each person who adopts the product thus confers positive externalities on other users. Personal computers (PCs) are a commonly cited example of this phenomenon. The value of Microsoft's Windows operating system, for example, depends in part on how many people use it and thus create markets for compatible hardware and software. The more people who use Windows, the larger the market for ancillary products becomes, thus encouraging the development of more ancillary products of higher quality and lower price.
The claim made on behalf of the combined effects of path dependence and network externalities is that one cannot depend on markets to get it right. Arbitrary initial starting conditions favor an inferior product. That product generates network externalities. As the number of users of the product rises, the size of those externalities increases, which gives the inferior product a huge competitive advantage. Eventually the network product achieves a "lock in" effect. At that point, path dependence kicks in. It becomes too expensive to switch to a new product even though that product is superior. Hence, the inferior product prevails.
In WINNERS, Stan Leibowitz and Stephen Margolis popularize their well-known (among economists) work debunking these fashionable theories. An important theoretical contribution, albeit one which is likely to be of interest only to economists and economically-minded lawyers, is the distinction they draw between "second-degree" and "third-degree" path dependence, which is driven by the availability of a feasible alternative to the suboptimal equilibrium. Only if such an alternative is available, does the phenomenon in question demonstrate true path dependence. Only if such an alternative nevertheless remains not taken, can the phenomenon in question even potentially be deemed inefficient in either the Pareto superior or Kaldor-Hicks sense.
Of greater interest to general readers will be WINNERS' debunking of several urban legends about path dependence and lock-in. Several now famous lock-in stories are reviewed, most notably the QWERTY keyboard and the VHS videotape format. Leibowitz and Margolis thoroughly debunk both stories. As for the supposed superiority of the Dvorak keyboard over the prevailing QWERTY model, for example, they show that the studies on which the claim of Dvorak's superiority was based were flawed. Drawing on evidence from ergonomic studies, computer simulations, and training experiments, they find that the Dvorak keyboard offers no significant advantage over the QWERTY model. Hence, the QWERTY fable (as they call it) does not even demonstrate second-degree path dependence, let alone the real thing.
Of primary interest to the general reader, however, will be Leibowitz and Margolis' extension of their argument to the antitrust case against Microsoft. The success of Microsoft's Windows operating system over alternatives such as Mac or OS/2 is frequently attributed to a network externalities/lock in story. Assume for a moment that the lock in story is true. It is not clear what the antitrust implications ought to be. Antitrust historically was justified by concerns that monopolies are harmful: they result in lower output and higher prices than competitive markets. It is not at all clear that this is true of software markets. Even if it were true, the positive externalities that result from the network effect might well outweigh those costs. Hence, a monopoly created by network effects arguably ought to be deemed a natural monopoly and, as such, tolerated by the antitrust laws. (The use of a natural monopoly in one market as leverage to monopolize a second one, as Microsoft is alleged to have done, of course, cannot be so justified.)
If Leibowitz and Margolis had limited their arguments to these points, the book would not have been controversial. (It also wouldn't have sold as well or gotten the attention it so richly deserves.) Instead, however, they try to debunk the claim that Microsoft's products are inferior ones that prevail only because of their network effects and path dependence. Here, I think they are on weaker ground than in either the QWERTY or VHS examples. Their primary empirical evidence on the quality of Microsoft products is software reviews in leading computer magazines with respect to a comparative handful of product markets. This is one plausible measure of quality, but surely it is not the only one. (I have often wondered whether the volume of advertising in those magazines effects their editorial content, for one thing.) Hence, it seems to me, that they overstate the case when they assert their data prove that Microsoft prevails in market competition because it makes high quality products that it sells at low prices. Having said that, however, this is an incredibly important and remarkably accessible introduction to the key economic principles that underlie the software markets.
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