U.S. Department of Justice

The U.S. Department of Justice is presented as a federal institution capable of challenging even a dominant technology company. Its action against Microsoft supplies a sharp contrast with Carlos Slim’s Telmex monopoly in Mexico: in the United States, government scrutiny and legal proceedings could impose a constraint on corporate power, while in Mexico, regulatory efforts against Telmex repeatedly failed. The comparison makes the department part of the book’s larger account of how institutions determine whether markets remain open to competition or become protected preserves.

The Microsoft Case

The department filed civil actions against Microsoft on May 8, 1998, alleging that the company had abused its monopoly power. The central issue was Microsoft’s practice of tying its Internet Explorer web browser to its Windows operating system. The case did not arise without warning: the Federal Trade Commission had begun investigating possible abuse of Microsoft’s monopoly in PC operating systems as early as 1991, and the federal government had been watching the company for years.

In November 2001, Microsoft reached a deal with the department. The resulting penalties were less than many had demanded, but the company’s power was nonetheless checked. The account’s emphasis is not that the government erased Microsoft’s dominance; rather, a firm’s size and the founder’s wealth did not place it beyond official scrutiny or negotiation.

A Contrast with Telmex

The U.S. action gains significance beside the account of Slim’s acquisition of Telmex, Mexico’s telecommunications monopoly. Slim’s Grupo Carso-led consortium won the auction despite not submitting the highest bid, and he arranged to defer payment for the shares, using Telmex’s own dividends to pay for them. A public monopoly thereby became a privately held and highly profitable one.

The contrast is institutional as well as personal. In Mexico, expensive licenses, bureaucratic obstacles, political influence, and difficulty obtaining independent financing could keep would-be competitors out of lucrative markets. These barriers could also protect an incumbent from competition. Slim was described as adept at securing exclusive contracts, first consolidating his position in Mexican telecommunications and then extending his reach into Latin America.

Legal Constraints and Their Limits

The Mexican Competition Commission’s findings show that the problem was formally recognized. After long-distance provider Avantel petitioned the commission in 1996, the commission declared in 1997 that Telmex possessed substantial monopoly power in local telephony and national and international long-distance calls, among other areas. Yet regulatory attempts to limit those monopolies came to nothing.

One obstacle was the recurso de amparo, a legal petition to argue that a particular law did not apply to the petitioner. Originally conceived as a safeguard for individual rights and freedoms under the Mexican constitution of 1857, the amparo could be used by Telmex and other monopolies as a means of entrenching their power. In that setting, a remedy meant to protect rights could instead open a loophole in equality before the law. The comparison with the Microsoft case thus concerns not simply whether laws exist, but whether institutions can make powerful firms answer to them.

The Dallas Judgment

The contrast became concrete when Slim’s business interests entered the United States. In 1999 his Grupo Carso bought CompUSA, which had already granted COC Services a franchise to sell CompUSA merchandise in Mexico. Slim violated that agreement in an effort to establish his own store chain without COC as a competitor. COC sued CompUSA in a Dallas court, and the case ended with Slim losing and being fined $454 million.

There was no amparo in Dallas to shield him from the contractual dispute. The episode closes the institutional comparison with a jurisdictional reversal: tactics that had helped Slim prosper in Mexico failed under U.S. legal institutions. The department’s Microsoft action is one part of the same broader argument—that legal and political arrangements shape whether market power is checked, protected, or converted into lasting advantage.