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Date:      Tue, 16 Nov 1999 16:00:04 -0800
From:      "David Schwartz" <>
To:        "David Scheidt" <>
Cc:        "Jonathon McKitrick" <>, "Erick White" <>, <>
Subject:   RE: Judge: "Gates Was Main Culprit"
Message-ID:  <000001bf308e$b39f8b10$>
In-Reply-To: <>

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> > desperate to find examples of lock in that they will just make them up
> > without ever even bothering to look at the facts. Can you
> present a single
> > clear-cut case of such lock in?
> Sure.  POTS.  No monopoly telephone company has an incentive to install
> anything better.  It is only when telephone companies face
> competition that
> they make alternatives available.  Bell Atlantic would charge me several
> hundred dolalrs a month for ISDN, and has no plans to offer any
> sort of high
> speed data services in this area.  Other places -- with much the same
> population density -- which have competititon from other telecos, or from
> cable companies, have lower ISDN prices, and BA are rolling out xDSL in
> these areas.

	Yes, I agree. The government can lock us into an inferior standard for much
longer than the market would normally allow. Another example would be
broadcast television. But I was talking about market lock in. Sure, the
government could mandate that everyone use DOS 4.0 on 386's if they wanted
to, that would certainly lock us in. At least for awhile.

	In any event, even POTS is largely retained because it does its job so
well. It is perfectly good for voice telephone calls, and that's still
mostly what it's used for. Better replacments for POTS in niche markets
where it sucks (such as data access) are coming of age now. We are getting
ADSL and cable modems.

	I think POTS is more an example of economies of scale than lock in. I don't
have a car designed to my exact specifications, but this isn't because I'm
locked to an inferior technology and no one has an incentive to custom build
a car for me. It's because I'm not a large enough market, and it's cheaper
and more efficient to target products at larger market segments. But this is
an efficient and automatic working of the market. It produces cars and
telephones for market segments, not individuals.

	Economies of scale can masquerade as lock in. You have to look very

	Ask yourself why Bell Atlantic has no competition in those areas. You will
see that it is the result of direct government intervention.

	It used to be believed that economies of scale were limitless in many
markets. Thus, a single electric company for the whole country would be more
efficient than a lot of little electric companies. So a decision was made to
grant monpolies to electric companies and regulate them to try to keep the
economies of scale without having the disadvantage of monpoly pricing.

	This has been largely a failed experiment for many reasons. And it's
gradually being undone through deregulation. Some of the failures are as

	1) Government intervention in markets has been shown to stifle innovation.
Competition (at least potential competition) is necessary for innovation.

	2) Economies of scale are not infinite. Subtle effects eventually create
diseconomies of scale. Amazingly, this is true even in markets like computer
software where incremental cost was sometimes assumed to be zero.

	3) The government has turned out to be worse than the market in picking the
right technologies to lock us into. And the government can put enough power
behind its decisions to lock us in for longer than a free market ever could.

	The government seeks to repeat these mistakes with Microsoft. This is not
surprising, every government failure has been accompanied by a new attempt
for government to find something to do. (This is why you see the US military
so involved in 'peacekeeping'.)

	If you look at the history of, for example, AT&T, you can see that AT&T
formed its monopoly by government fiat. "We can't all be on incompatible
phone systems", they cried. Full knowing that the technology to allow
diverse phone systems to interoperate was only scant months away. The
government bought the argument, and we all know where that went.

	Now it's happening in reverse. "We all can't be on incompatible operating
systems", the government is crying. This claim is as false now as it was

	Back then, we could all have used whatever telephones, networks, and
standards we wanted to. We would have found a way to interoperate -- as we
have now that competition has been restored mostly. And now, we can all use
whatever operating systems and office packages we want to, and we'll find a
way to interoperate. We don't need the government to sort it all out for us.

	In any event, if you really do believe that the benefits of compatability
are so great and the costs of changing operating systems to greate, that we
all want/have to use whatever opearating system everyone else is using, then
it would be a mistake to do anything to Microsoft. By this reasoning,
Microsoft is providing us exactly what we want and what we should have. If
we all really do want the same operating system, why shouldn't we be allowed
to have it?

> > 	Do you realize what Microsoft had to do to make a Windows
> 3.1 version of
> > IE? Do you relalize the effort expended to produce WIN32s? All of these
> > things were done precisely so that people would _not_ have to upgrade.
> I don't care about IE on win3.1.  I care that I have a machine
> which has an
> original version of Windows95 on it, and on which I cannot install office
> 2000.  Why?  because office installs different versions of .dlls, and
> *breaks* *third-party* applications, which are coded in conformance with
> Microsoft's *published* APIs!  Oddly, MS stuff continues to work.

	As I said, it's expensive to stay on the trailing edge of technology. If
you choose to get the advantages of it, you have to bear the burdens of it.
Nobody else is going to subsidize your choice by keeping compatability that
has a greater cost than benefit for the majority of consumers.

	It's hard to get new software for a '286 too. Whose fault is that?


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