Microsoft

Microsoft’s rise illustrates a central contrast in the book’s account of economic institutions: an exceptionally innovative company and its powerful founder could still face a federal challenge to their market practices. The U.S. government scrutinized Microsoft’s dominance of PC operating systems, brought a civil case over the bundling of Internet Explorer with Windows, and reached a settlement with the company in 2001. Set against Carlos Slim’s acquisition of Mexico’s Telmex monopoly, the episode shows how institutions can constrain some forms of market power while allowing others to become entrenched.

Innovation and Market Power

The company’s prominence is linked to its technological innovation and to Bill Gates, its founder, who became the world’s richest person. But that status did not place Microsoft beyond government scrutiny. The book emphasizes the contrast between the company’s innovations and the federal government’s concern that its control of a major operating system market could be used to restrict competition.

The specific practice at issue was Microsoft’s bundling of its Web browser, Internet Explorer, with its Windows operating system. The case therefore concerned not simply the company’s size or success, but the way its position in PC operating systems might be used to extend its reach into another market.

Antitrust Scrutiny and Settlement

The Justice Department’s civil actions, filed on May 8, 1998, followed earlier scrutiny. As early as 1991, the Federal Trade Commission had begun an inquiry into whether Microsoft was abusing its monopoly on PC operating systems. The sequence—an inquiry years before the later civil case—shows that the government’s attention to the company’s market position was sustained rather than sudden.

In November 2001, Microsoft reached a deal with the Justice Department. The book characterizes the result as clipping the company’s wings, while noting that the penalties fell short of what many had demanded. The settlement thus imposed a constraint without undoing Microsoft’s prominence or the underlying significance of its position in the market.

Institutional Contrast

Microsoft’s treatment is contrasted with Carlos Slim’s acquisition of Telmex, the Mexican telecommunications monopoly privatized in 1990. Slim’s consortium won the auction despite not making the highest bid, and he delayed payment for the shares, using Telmex’s own dividends to pay for them. The former public monopoly became Slim’s privately controlled, highly profitable monopoly. The comparison is not that the two companies occupied identical markets, but that their stories reveal differing institutional constraints on concentrated economic power.

The book uses Microsoft’s antitrust case to show that in the United States, even a company founded by a highly successful innovator could be challenged by public authorities over its conduct. In its account of Mexico, by contrast, barriers to entry—including licensing costs, bureaucratic obstacles, political influence, and restricted access to finance—could protect incumbents and make connections decisive for competitors. Microsoft’s episode therefore serves as evidence in a broader argument about how political and economic institutions shape both the possibilities for competition and the limits placed on corporate power.