|
|
|
||||||||
Judge Compares
Microsoft To Wal-Mart In Trial
WASHINGTON - The judge in the Microsoft antitrust trial compared the software giant to a large Wal-Mart store in a small town Tuesday and wondered if it amounted to a "benevolent despot," or a "monopoly."
The judge's comment came as he questioned Richard Schmalensee, dean of the Massachusetts Institute of Technology Sloan School of Management and the expert economic witness for Microsoft Corp.,.
Schmalensee has offered a vision of a free-wheeling, competitive software marketplace that contrasts with Justice Department's darker picture of a Microsoft that leaves little opportunity for competition.
The Justice Department and 19 states contend that Microsoft holds monopoly power in the operating system for personal computers and has illegally used that power to keep would-be rivals at bay.
But Schmalensee said that others are free to compete and likened the situation to a small town with one grocery store that begins to face competition. Schmalensee said others can compete if they build a store, hire clerks and stock the store.
District Judge Thomas Penfield Jackson at first said the analogy did not help him, but then seized it to present a potential problem.
"This is the whole Wal-Mart phenomena," said the judge, referring to the U.S. retail giant know for huge discount stores that offer an exceptionally wide variety of merchandise. "The issue of whether there is competition for Wal-Mart."
Judge Jackson asked of a big Wal-Mart in a small town: "What if it means no new entrants will ever enter the market?"
Schmalensee replied that in a very small town there "may not be the working of a competitive marketplace."
But he said that if there is a mega-store with good merchandise and lower prices, others may simply be deterred from entering.
Jackson said, "You may have a benevolent despot or monopoly."
Schmalensee said the situation was better than that: "If a firm begins to think like a benevolent despot and is not protected by barriers to entry it will have a short reign."
The government contends that Microsoft has barriers to entry from would-be competitors because of "network effects."
The government says most people use Microsoft's Windows operating system, so software applications writers spend their efforts on programs that run for Windows, where the money is.
As a result, no competing operating systems are able to attract software writers and compete with Windows.
Schmalensee characterized that as the "chicken-and-egg" problem, but said the door is open to Microsoft's competitors.
He said the Linux operating system was attracting capital and writers. And Schmalensee said applications that run on the World Wide Web are also a threat to Microsoft, and that leading Internet service provider America Online Inc. may offer those.
Schmalensee also said Web appliances present a threat to Microsoft.
Panel: E-commerce
Levy Inevitable
WILLIAMSBURG, Va. -- Before
tackling its main mission of suggesting future Internet tax
policy, a congressional commission was forced to confront
potential conflicts of interest that could undermine its
credibility.
Fireworks at the first meeting of
the Advisory Commission on Electronic Commerce on Tuesday came
over hiring an executive director recommended by the panel's
chairman, Republican Gov. Jim Gilmore of Virginia.
Gov. Michael Leavitt, R-Utah,
raised questions about hiring Heather Rosenker, a public
relations professional from northern Virginia, because her
husband works for the Electronic Industries Alliance lobbying
group, which donated office space worth $263,000 to the
commission in Arlington.
Several commission members agreed
that the arrangement could taint the panel's tax recommendations
to Congress, which are due in April 2000.
But Gilmore pushed to hire
Rosenker, assuring other members he would check whether any
conflicts exist. He said if there was a problem, the office could
move to nearby George Mason University. In the end, Rosenker was
unanimously hired.
"I don't believe that is a
conflict,'' Gilmore said. "She makes no policy regarding
this group.''
The panel also sought to defuse
controversy over how to raise money by agreeing that each of the
five major business interests on the panel would contribute
$50,000 temporarily. Congress appropriated no funds for the
panel, but it plans to ask Congress for $1.7 million budget to
avoid potential conflicts in asking for private contributions.
On the tax issues, opening
statements from 17 of the 19 commission members made it clear
that a majority believe the Internet cannot remain effectively
tax-free forever.
"We must not allow the
Internet to become a tax haven that drains the revenue
governments need to provide the services that citizens demand,''
said commission member Joseph Guttentag, a top Treasury
Department official.
His view was echoed by the other
federal, state and local government officials on the panel and,
more importantly, by most of those representing the business
sector. The main point of contention between the public and
private sides is whether state sales taxes levied on traditional
purchases in stores should be imposed on similar Internet sales.
But the business representatives
said they would adamantly oppose any tax that singled out the
Internet, such as a charge on World Wide Web access. And the
public officials agreed that e-commerce taxes must not hinder the
medium's explosive growth or allow the government to pry into
private transactions.
Commission members appeared to
largely agree on two principles: that any Internet tax be no
different from that on other forms of commerce, and that any
system be as simple as possible to reduce the cost of compliance.
"Our challenge here is not to
restrain the growth of the Internet but to allow the Internet to
flourish,'' said commission member David Pottruck, president of
Charles Schwab Corp. "We need to find the balance.
Governments need money. Tax systems need to be fair.''
In the law that created the
commission, Congress imposed a three-year moratorium on new
federal, state and local e-commerce taxes, which expires in
October 2001.
The 45 states with sales taxes
currently have no way to collect them on Internet commerce if the
seller is located in another state. Like catalog sales,
e-commerce is governed by Supreme Court rulings saying one state
cannot force another state to collect and remit sales taxes
unless Congress changes the law.
Yet in 1998, these essentially
tax-free Internet sales amounted to about $170 million in lost
sales taxes, according to a study released Tuesday by the Ernst
& Young accounting firm. That compares to over $4 billion in
sales taxes lost to mail order sales.
Still, there appears little doubt
that Internet commerce will continue to grow, possibly resulting
in a shift by more and more consumers from shopping at
traditional "brick and mortar'' stores to cyberspace -- open
24 hours a day and with unlimited inventory.
"A lot of people believe the
total pie is going to get a lot bigger,'' said commission member
Andrew Pincus, general counsel at the Commerce Department.
"At some point, that gets to be a pretty significant
slice.''
