The Independent Institute
(II is an independent public policy research organization whose goal is to transcend the political and partisan interests that influence debate about public policy. II aims to redefine the debate over public issues, and foster new and effective directions for government reform, by adhering to the highest standards of independent scholarly inquiry, without regard to political or social biases.)
OAKLAND, Calif. -- Rise of DVDs casts doubt on Microsoft ruling
by Paxton Hehmeyer
According to a recording media trade group, consumers spent $4.6 billion on digital videodiscs, or DVDs last year -- more than twice as in 2000 -- beating out VHS cassette sales for the first time. DVDs sold spectacularly even though VCRs are in four times as many households as DVD players.
Some chain stores, such as Circuit City and Borders, expect this trend to continue. They are replacing their VHS inventories with DVDs.
If this sounds familiar, it may be because the VHS format itself trounced its rival, Beta, in the middle to late 1970s.
Some have complained that the success of the VHS format locked consumers into an inferior technology.
But in their book "Winners, Losers & Microsoft," economists Stan Liebowitz and Stephen Margolis challenge the notion that Beta was better than VHS. Although Beta did provide a technically better picture, consumers could not notice this difference on the televisions of the late 1970s.
VHS, on the other hand, offered a longer taping time than Beta, a feature especially desirable for recording long movies and football games.
Since the end of the VHS/Beta wars, however, "lock-in" continues as a popular and often-cited urban legend. The lock-in theory claims that consumers can sometimes become "locked in" to an inferior technology simply because it has a sufficiently large number of users -- either because of chance or because consumers adopted it before better alternatives were offered.
Lock-in allegedly occurs in markets where a product, such as a fax machine, becomes more useful if more consumers use it.
Unfortunately, theories can gain a life of their own even when facts do not support them. During the 1990s, lock-in theory was cited in several antitrust cases brought against companies such as American Airlines, MasterCard and Visa.
In 2000, U.S. District Court Judge Thomas Penfield Jackson found that Microsoft violated antitrust laws because "positive feedback loops" (that is, lock-in) kept the company's rivals from effectively competing in the market for personal computer operating systems.
True, Microsoft holds about 50 percent of the market share for operating systems, compared with its closest competitor, Linux, which has about one-fourth of the market. But this does not mean that Windows is any less immune to competition than VHS is from DVDs. Here, the case of VHS vs. Beta is instructive.
Supposedly, neither Beta nor, later, laser discs could break the barriers to entry that VHS's consumer base presented. But DVDs are doing so and at an astounding rate. Even if Beta and laser discs offered superior technology, most consumers obviously decided that it was not worthwhile to switch from the VHS format, until something sufficiently better came on the market.
More than likely, DVD will become the new industry standard, until something else replaces it, just as VHS superseded Beta. As Liebowitz and Margolis observe, some markets only efficiently support one technology, which then becomes the industry standard, until a much better standard emerges and supplants it, and so on.
Court-imposed sanctions to dismantle a market leader in such a situation, say the economists, would only lead to the emergence of a new leader resembling the old one in terms of market share.
Indeed, such market leadership may actually be the best option for both businesses and consumers, especially when compared with the Federal Communications Commission's recent mandate that manufacturers install digital tuners in televisions made after 2005 -- which is an example of a standard that won't change until the bureaucrats say so.
As Microsoft and others await Judge Colleen Kollar-Kotelly's imposition of a remedy for the company's violation of antitrust laws, Microsoft is already developing new operating systems and features intended to replace Windows in the same way that Windows replaced DOS. This technology could very well render pointless all the litigation against Microsoft's dominant position in the PC operating systems market by changing the very definition of the market itself.
Consumer choices made DVDs one of the fastest-growing electronics products ever, toppling VHS's 20-year dominance of the recorded media market. Similarly, it should be consumer choices, not court-imposed restrictions or mandates, which select the new standard in OS technology -- one that will likely break Windows.
(Paxton Hehmeyer is a public affairs intern with The Independent Institute.)
Institute for Public Accuracy
The Institute for Public Accuracy
(The IPA is a nationwide consortium of policy researchers that seeks to broaden public discourse by gaining media access for experts whose perspectives are often overshadowed by major think tanks and other influential institutions.)
WASHINGTON -- The Bush economic forum: Beyond the photo-ops
-- John Miller, professor of economics at Wheaton College in Massachusetts and contributing editor for Dollars & Sense magazine.
"The Bush administration is rounding up the usual suspects -- conservative politicians, economists, business types and even large donors -- for a forum on why that pesky economy refuses to respond to Bush tax cuts and what to do about a federal budget now hemorrhaging red ink.
"Unfortunately, Tuesday's economic gab fest is likely to shed little light on how to restore robust economic growth in a sluggish economy saddled with excess capacity of business capital, staggering levels of consumer debt, a teetering stock market and record-setting levels of economic inequality.
"Abandoning what is left of Bush's tax giveaway for the wealthy, which will be enacted too slowly to have any stimulative effect on the economy, and restoring much-needed infrastructure spending and social services would do far more to get the economy going again and put people to work than Bush's economic program.
"But those ideas won't make it onto Tuesday's agenda, which is sure to be filled with blather about how more giveaways to the rich and less government are the only way to get the economy going again. The economic policies made by and for people attending the conference are the problem, not the solution."
-- Julianne Malveaux, an economist and columnist.
"The so-called economic summit lacks merit on its face. Most of those who will attend have paid to sit in the room. The 'ordinary people' who Mr. Bush will talk to have been carefully vetted to mute any criticism of Mr. Bush ...
"This is little more than a photo-op, a partisan infomercial. If Mr. Bush were serious about talking about the economy, he'd talk about the incredible disappearing surplus, about the layoffs that have taken place in the last few months, and about next steps in corporate governance.
"Instead of shaping a substantive discussion, though, Mr. Bush and his handlers have concentrated on image, having seemingly spent more time and thought designing an attractive and media-friendly backdrop for the summit than on the plight of the millions of Americans who have been hurt by the Bush economy. One million six hundred thousand fewer Americans have jobs now than when Mr. Bush began his presidency. How many of them have been invited to the summit?"
-- Richard B. Du Boff, professor of economics at Bryn Mawr College.
"The Republicans are worried that the Bush administration is not speaking with a 'strong economic voice' these days: they fear that they are in trouble for the November elections and that the president may meet the same fate as his father in 2004. Why are they surprised?
"The president believes that the only things wrong with the economy can be fixed by tax cuts for the rich and eliminating regulations on business. Does he need a more commanding public figure to confirm that? Or does he realize that unemployment, stagnant real wages and inadequate medical care threaten the well-being of tens of millions of Americans, and that state and local governments, which provide many of our public services, are financially squeezed and cutting back?"
The National Center for Policy Analysis
(The NCPA is a nonprofit, nonpartisan public policy research institute that seeks innovative private sector solutions to public policy problems.)
DALLAS, Texas -- Preventing corporate inversions isn't Congress's business
by Bruce Bartlett
Congress is set to address corporate "inversions," which result when U.S. corporations reincorporate in a foreign country in order to reduce their taxes -- creating the false impression those jobs and factories are moving abroad. In fact, the only thing that is moving is legal residence for tax purposes. Given U.S. corporate tax rates compared with those of other countries, it's not a surprising decision.
This goes on inside the United States all the time.
-- According to the Federation of Tax Administrators, the top corporate tax rate is 12 percent in the state of Iowa. However, neighboring Kansas has a rate of just 4 percent -- and no doubt, over the years, there are any number Iowa companies that have reincorporated in Kansas in order to save 8 percent per year in taxes.
-- North Dakota has the country's highest personal income tax rate at 12 percent. Yet South Dakota has no income tax at all, which may explain why the former's population has been falling, while the latter's has been rising.
-- But for companies, it's trickier. A company that incorporates in Canada pays taxes only on its operations in Canada. If it has a U.S. subsidiary, it pays U.S. taxes on its profits here, but none to Canada. However, the exact same U.S. company with an identical Canadian subsidiary will pay Canadian taxes plus U.S. taxes on its Canadian operations as well. Thus, the U.S. company will pay more total taxes even if the United States and Canada have the same tax rates.
It is this anomaly in U.S. tax law that encourages inversions. Instead of writing new laws to prevent inversions, Congress would be better advised to cut corporate tax rates. The inversion phenomenon should be viewed as a warning that U.S. rates are too high.
(Bruce Bartlett is a senior fellow at the National Center for Policy Analysis.)
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