Competitionlaw is often applied in market places where there are problems withthe competitive process of the market or in instances where marketfailure arises. Usually, the competition laws encompass theintervention of public authority and are founded on different aspectsof the legal systems. Often, monopolies, cartels and mergers form thethree integral issues for the competition laws. This is mainlyinformed that upon a firm achieving a monopoly status in a market,dominate and exploit their position. Therefore, the competition lawsexist to ensure that markets are run effectively and there exist alaw that defines and regulates conduct of businesses thus preventingthem from getting into anti-competitive behaviors and abusing theirdominant positions in the market.
Thispaper seeks to analyze two companies Microsoft and Telmex in termsof the legal issues and the impacts on management decisions. Telmexis a telecommunication company based in Mexico City which providestelecommunication products and services (Van Fleet, 1995). On theother hand, Microsoft Corporation is an American multinationaldealing in technology with its main focus on manufacturing, selling,licensing and supporting of computer software and electronics(Brennan, 2000). Both companies have on different occasions foundguilty of abusing their dominant position in the market. Forinstance, Microsoft Corporation abused its dominant position for thepersonal computer and hence violated EU Treaty Competition Rule inthe European Market (Brennan, 2000). Interestingly, Telmex alsoenjoys the same monopoly, with 90% market share and has been accusedof thwarting competition by all means and thus ensuring dominance(Van Fleet, 1995).
Thispaper seeks to analyze two companies Microsoft and Telmex in termsof the legal issues and the impacts on management decisions. Telmexis a telecommunication company based in Mexico City which providestelecommunication products and services. On the other hand, MicrosoftCorporation is an American multinational dealing in technology withits main focus on manufacturing, selling, licensing and supporting ofcomputer software and electronics. Both companies have on differentoccasions found guilty of abusing their dominant position in themarket.
Inorder to prohibit anti-competitive behavior, Mexico adopted FederalLaw of Economic Competition (LFCE) in 1993. Further, FederalCompetition would then be created to enforce LFCE. The main aim wasto protect the competitive process and free market access by barringthe monopolies as well as monopolistic practices. Until recently,regulatory authorities in Mexico telecom industry have not managed tocurb monopolistic practices of Telmex (Van Fleet, 1995).
In1997, Telmex was found guilty by CFC of being a dominant player (Fox,2006). The telecommunication company was found to abuse its positionin five telephony markets and these included local telephony service,long-distance service nationally, long-distance serviceinternationally, access to local networks and inter-tuban transport.A year later, Telmex would file amparo against the ruling made andthe case is still pending in courts. Up to date, Slim has filedamparos to frustrate the decisions of CFC and Cofetel.
Eventhough Slim’s company has been found guilty to be a dominantplayer, it monopolistic tendencies have been tolerated by theauthorities. One reason for this is that Mexico as a country iscorrupt and majority of companies keep a large share of theirrevenues to bribe government officials. There is political will todefend the business class rather the interests of the public. Thewill is mainly informed by the strong ties between the government andthe business elite. Hence the business moguls thrive at the expenseof the Mexican nationals. Further, it is believed that the power andinfluence that Slim holds in the Mexican economy protects him. Theother political factor under concern in the case of Telmex isconcerning regulations (Van Fleet, 1995). Telecom license in theMexican market is tightly controlled and very expensive thus thisgave Telmex an upper hand over its competitors as it is establishedand has connection in the ruling class (Fox, 2006).
Owingto the positive effect that Telmex had on the industry, thegovernment has also made it difficult for other companies to easilyenter into the market. Additionally, the regulator, NAFTA (NorthAmerican Free Trade Agreement) is prohibited from starring businessin Mexico. The other competitors have to acquire permission from thegovernment to enter the market. Mexico has communication act whichhas impact on the operations of the companies entering the market.This communication act has been seen to be advantageous to theoperations of the company.
Theabuse of dominant position has an impact on management decisionmaking socially. In Mexico, the education level ranges between 90 to95 % (Fox, 2006). In this case, individuals make good decisions forthe best product and company to go for in the market. Aware of thisfact, Telmex has ensured that in abusing its dominant position, itcontinues to provide the best in the market in terms of brand andprices of connectivity thus locking its competitors from the market.In making major decisions at the management level, change inlifestyles of individuals as a result of technology must beincorporated. This makes the company to be competitive enough thusconvince its consumers that it has the best products. Thus, in questto continue providing the best and edging the rest of the companiesin the market, Telmex employs very unfortunate strategies that leadthem to become dominant player in the market (Van Fleet, 1995).
Inexploring their position, they end up abusing their powers hencedisadvantaging their competitors in the long run. Additionally, thereare different social classes in Mexico and the management of Telmexhas to keenly consider this. The product target and the legal effectsof their products have different effects on the different classes inexistence. For instance, the medium and upper class are keen to thevarious legal issues that surround a company and thus their choice ofthe product could be informed by the perception on legal matters athand. This also applies to the case of Microsoft where individualstend to prefer legal products and any case attached to the productaffects its brand image (Brennan, 2006).
Inone of the most recent decision made by European Union CompetitionCommissioner, Microsoft was found guilty of abusing its dominantposition in the market. The abuse was in the area of personalcomputer operating system as well as violation of EU Treaty’sCompetition Rules. This landmark case would lead to an imposition ofa fine of Euro 497 million on the company (Brennan, 2000).
Thecase came up as a result of a case that was earlier filed by SunMicro-Systems in December 1998 (Brennan, 2000). Sun Micro-Systems isa competitor of Microsoft. The company alleged that Microsoft didnot allow for provision of interface information which was essentialfor development of products by Sun. The action by Microsoft resultedin unfair competition between the two companies in the market forWork Group Server Operating Systems (WGSOS). For sure, it was amarket strategy employed by Microsoft Corporation to lock out itscompetitors out of market.
TheUS legal system is organized just like the Mexican legal system (Fox,2006). However, the difference could be in transparency andefficiency levels involved. US system seems to be much transparentthan Mexican one (Fox, 2006). This is informed by the manner in whichthe US has been able to handle the cases surrounding MicrosoftCorporation in comparison to the Mexican courts (Fox, 2006). UScourts and regulators have managed to reach a conclusion to the casesinvolving the abuse of dominant position by Microsoft while Telmex inMexico continue to make profits out of these unfair practices. Thelegislative system in the US seems to encourage high level ofbusiness freedom thus encouraging competition through a boost intrust and confidence of investors while for the case of Mexicobusiness freedom is minimized encouraging more of the monopolisticpractices and tendencies.
Theabuse of dominant position had an impact on choice of customers asthere was no disclosure of interface. Most consumers would inclinetowards the products of Microsoft. There was an obviousinter-operability advantage which Microsoft reserved for itself aswell as its growing market share. A case example of this abuse is theintegration of Microsoft Windows Media Player (WMP) with the windows2000 PC operating system. The integration of the WMP in Microsoftproducts had an effect on the incentives of music, film as well asother media companies (Brennan, 2000). The effect was also immense oncontent providers and software developers. Thus, the integration ofmedia player product foreclosed the market to competitors. In thelong run, the choice of consumer was reduced given that the relatedproducts were put at a disadvantage that was not related to theirprice or even quality (Brennan, 2000).
Inabuse of dominant position by Microsoft Corporation, politicalfactors played an integral role mainly to do with the regulations.There were no strong regulations that governed the production ofcontent and software hence this allowed Microsoft to take advantageof its dominant position in the market (Brennan, 2000). Given theimmense contribution of the company to the market and economy of itshost country, US, little was done to cushion its competitors fromunfair competition. This explains the reason behind the long natureof the case that was battled in the court for over 10 years. US hastougher regulations than other countries like Mexico where Telmexenjoyed dominance. Further, corruption is a vice that is nottolerated at any cost in United States. Thus, corrupt practices didnot play a part though like the case of Telmex in Mexico.
Inconclusion, the paper has analyzed two companies Microsoft andTelmex in terms of the legal issues and the impacts on managementdecisions. The legal, social, ethical, and political differences andtheir impact on management decision making on each firm based on thecountry in which their company’s headquarters is based has beenbrought out. Both companies have on different occasions found guiltyof abusing their dominant position in the market. The cases have beenexplored extensively and a conclusion reached on their impacts.
Brennan,T. J. (2000). Do Easy Cases Make Bad Law–Antitrust Innovations orMissed Opportunities in United States v. Microsoft. Geo. Wash. L.Rev., 69, 1042.
Fox,E. M. (2006). the wto’s first antitrust case–MEXICAN TELECOM: asleeping victory for trade and competition. Journal of InternationalEconomic Law, 9(2), 271-292.
VanFleet, A. (1995). Mexico`s Federal Economic Competition Law: The Dawnof a New Antitrust Era. Antitrust LJ, 64, 183.