Tuesday, March 01, 2005

More Communication Between the Blog Hemispheres

by Tom Bozzo

Richard Lawrence Cohen describes (via Althouse) himself as "heteroblogual" — having the "vice" of reading right-ish blogs. I'd suggest he substitute Professor Bainbridge for Peggy Noonan, but to each his or her own. There's an undeniable advantage in, from time to time, stepping out of what can be an echo chamber of one's own partisans. As Cohen nicely puts it, "If I want to know the thoughts of someone like me, I’ll write them myself."

Meanwhile, Joe Malchow responded to yesterday's post at Dartblog. He suggests I offer a more substantive response to his post, which is what inter-blog communication should be all about — I agree — so here goes. (He also raises some issues of the tone of the left blogosphere, which I addressed to some extent in previous posts and won't address further in this one.)

Malchow says that he understands that U.S. corporations should observe local laws in foreign jurisdictions where they operate. He then highlights two items from his original post: first, an analogy between Microsoft's bundling of Windows Media Player with Audi's bundling of audio systems with cars; second, setting a potential fine based on Microsoft's worldwide sales. I'll respond to each in a moment.

As a digression, my main complaint was actually with Malchow's opening. His post led off:
It was abhorrent enough that the E.U. took it upon itself to bring an American corporation to court and levy fines against it...
My objection is to the implied exceptionalism. The U.S. Department of Justice takes foreign corporations to court for antitrust violations and thereby levies fines against them — see, for instance, this press release involving a long-running price-fixing conspiracy mainly involving Japanese and European firms. If Malchow would suggest that U.S. antitrust enforcement is abhorrent, too, then he'd be consistent. Were that the case, I'd suggest he'd still need to explain why not enforcing competition law was in the public interest.

To return to Malchow's reply, I don't think the points he raises are the strongest he could muster on Microsoft's behalf. Arguably a more effective argument, which he perhaps touches on in suggesting that the Windows Media software is actually desirable, is that the bundling benefits consumers on balance.

The Audi car stereo bundling analogy is not really on-point. All bundling is not presumed to be actionably anticompetitive. The E.U.'s case against Microsoft involves an alleged abuse of Microsoft's dominant market position in operating system software. The critical difference is that whatever Microsoft's true situation (I can't comment on the merits), Audi clearly does not have a dominant market position in the automotive or car stereo markets. So Audi's lack of market power implies that its bundling of the car and stereo is likely to be "innocent."

As for the magnitude of the fine, my understanding is that E.U. law generally limits antitrust fines to 10% of global revenue ("turnover"). In that sense, once it's granted that the E.U. has a sovereign right to enforce its laws, a 5% fine is stiff but ostensibly within the law.

It's also the case fines of similar magnitudes have been levied in U.S. antitrust actions. In the case I linked above, $120 million in criminal fines were imposed for a product that the DOJ release says has worldwide sales of around $200 million/year. So with a 17-year conspiracy period, the back-of-the-envelope figure (the ratio of the fines to the global sales over the conspiracy period) is a fine of around 3.5% of global revenue.

One final comment. The "West Wing Syndrome" refers to a vice of defending policies on ideological grounds rather than results -- this is not a problem unique to conservatives, I'll freely admit. It's also not one completely unacknowledged by conservatives, either, as at the Professor Bainbridge post I linked in the previous post showed. Notwithstanding my criticism of that Bush budget post, Andrew Samwick would be a good role model in avoiding the Syndrome. I may not agree with him all the time, or even often, but in his blog he regularly and seriously engages various liberal economists on the merits of economic policies.
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