Microsoft vs Netscape – Policy for Dynamic Models

David Allen, Co-editor, Information Economics and Policy

1/01/2005
(Original Publish Date: 1999)

Traditional static approaches to competition policy are coming under increasing scrutiny in dynamic technology markets. Beginning with the face-off between Microsoft and Netscape, the torrent of innovation which is the 'Net and the Web yields a model to capture the essential dynamics. Simple at its core, the novel model unfolds to the natural richness of the evolving Web (with, among others, flexible industry structure, an information 'product' distinct from the industry behavior which creates it, variety and commonality as part and whole, shared protocols to guide process, and a working definition for "openness"). Inference derives from industry and technology cases, throughout. Now with a template in hand to describe the evolutionary scenario, anti-trust and intellectual property rights can begin to be retooled, to suit the dynamics of change. At stake are productivity and a society's standard of living. The Internet and Web, in the last few years, have been party to one of the more surprising runs in the annals of innovation. Sustained innovation—and with that the prospect for long-term productivity increase—lie at the root of a society's capacity to improve its standard of living. Development of the 'Net and Web carries encapsulated within its story a model for industry organization. In this story, the borders that define industry actors shift dynamically, contrary to convention. I suggest this model is pivotal in the remarkable capacity to sustain innovation. This paper, beginning from the intense commercial conflict particularly between Netscape and Microsoft, goes to some pains to elucidate the embedded industry model. With the model in hand, the question becomes, and the paper turns to, comparisons against prevailing theories and policy prescriptions.