The Theory of Market Leaders, Antitrust Policy and the Microsoft Case

The New Economy, characterized by dynamic, global and innovative markets, requires a new way to approach many economic issues and also a new way to approach policymaking. This work will analyse a new approach toward competition policy based on recent progress in the theory of market leaders and discuss its implications with special reference to the markets in the New Economy, whose distinctive features, namely high fixed costs of R&D, less relevand marginal costs of production and network e?ects, require a di?erent approach from traditional markets. Close attention will be given to the software market, whose market leader has been (and still is) the subject of the attention of antitrust authorities around the world.The work is organized as follows. In Section1 I will present a brief overview of antitrust policy in US and EU and I will try to motivate the need for a new approach to competition policy, especially for the markets in the New Economy. Section 2 will survey traditional approaches to competition policy, while Section 3 will present the innovations associated with the theory of market leaders. Section 4 will apply the new approach to general issues of abuse of dominance with particular reference to the software market and to the Microsoft case. Section 5 will deal with bundling issues again with reference to the software market. Sections 6 will move to competition for the markets and to interoperability issues which are crucial for the dynamic markets of the New Economy. Section 7 concludes, while the Appendix contains some more technical results on the behaviour of market leaders.