I have a question regarding tying. Meese offers a number of arguments which suggest that vertical restraints are efficient in some cases. In the absence of Microsoft's restrictive licensing contracts how would OEMs act? What software bundles would they offer? How would they modify the Windows 95 OS?

Microsoft has an interest in ensuring that there is openness within the Windows 95 world. The attractiveness of Windows stems from the fact that there is a large installed base of Windows users -- for example, balkanization within the Windows world along the lines of Dell owners, Compaq owners, etc. is to be avoided. It appears that Microsoft's primary concern is interbrand competition among operating systems rather than interbrand competition among machines that use the Windows OS.

Microsoft and the OEMs appear to have differing incentives. Microsoft seeks to maximize its profits from the sale of Windows operating systems and applications. The OEMs are attempting to capture as much of the market for Windows based platforms as possible.

Is the prospect of balkanization in the Windows world a possibility? What would Microsoft have to require in its contracts as a minimum to ensure that balkanization does not occur?

-- Anonymous, November 22, 1998