South-Western College Publishing - Economics  
Microsoft Makes a Bundle and Incurs Wrath of Congress
Subject Anti-trust Legislation, Tying Contracts (Bundling)
Topic Market Failure
Key Words Bundling, Clayton Act
News Story When a Senate panel questioned Bill Gates, they criticized Microsoft's policy of bundling its Internet Explorer web browser with its Windows software. Since Microsoft Windows owns over 90 percent of the market for operating systems software, there is concern that producers of other web browsers will be excluded from competing regardless of the quality of their products.

The Clayton Act of 1914 limits the tying of one product to another. Regardless of the legality of the situation, the chairman of the Consumer Federation of America believes that Microsoft has no sense of public responsibility. Against this, Microsoft argues that its web browser is an integral part of its Windows software. Also, one business professor pointed out that even good corporate citizens can come to dominate markets.

Historically, companies like Kodak and IBM have successfully defended themselves against charges of illegally bundling products.
(Updated June 5, 1998)

  1. In what circumstances is the bundling of products illegal under the Clayton Act?

  2. What kind of market structure might result from bundling? Why?

  3. Given your answer to Question 2, what outcomes might result from bundling that are not good for the public?

  4. Explain the business professor's likely rationale for believing that good corporate citizens can wind up dominating markets.

  5. Why is antitrust action against Microsoft likely to be unsuccessful?
Source Chris Woodyard, "Microsoft case conjures tales of antitrust tactics," USA Today, March 6, 1998.

Return to Market Failure, Regulation, and Public Choice Index

©1998  South-Western College Publishing.  All Rights Reserved   webmaster  |   DISCLAIMER