What's so different this time around? After all, trustbusting has been in existence since the breakup of the empires of Mellon, Carnegie and Rockefeller at the beginning of this century. Stalwarts such as Standard Oil and AT&T have borne the brunt of the US Justice Department's ire, and US anti-monopoly legislation, such as the Sherman and Clayton Acts, are a century old. Yet the Microsoft case if different, because it has to do with software.

To go by the Microsoft viewpoint, software cannot possibly be a monopoly at all. Strictly speaking, predatory pricing is impossible in the software industry. Predatory pricing is defined as charging below marginal cost (which is the cost of making an additional unit of the product), in order to drive competitors from the market. So Microsoft gives away its Internet Explorer free with Windows in order to cut Netscape out of the browser market. But Microsoft says that charging below marginal cost is impossible in software, for the simple reason that the marginal cost of a softwareproduct is zero.

The beauty of a software product is that, once a product is developed, making additional copies involves zero or negligible cost. Moreover, distributing the product through the Internet also involves zero marginal costs. The software industry, therefore, does not fall within the definition of predatory pricing at all.

The second argument against Microsoft is that it uses its monopoly in operating systems (Windows has 90 per cent of the operating system market), to distribute other products free. Such bundling arrangements affect other sellers. But bundling is objectionable only when it is the result of a monopoly. Microsoft's argument is that since marginal costs are zero, a software company cannot set prices, and hence cannot be a monopolist. If it tries to set prices lower, competitors will rush in, since the marginal cost and distribution costs are negligible.

The trouble with these arguments is that they do not take into account another feature of the software industry-networks. The distinguishing feature of networks is that the more people use it, the more its value grows exponentially. A single telephone, for example, has no value. The more people get connected to the network, the more does its value go up. The same thing happens when an operating system is used by people. As more and more people use it, the more likely will it be that new entrants to the network too will use the dominant system. Windows is one such dominant product, and the entry barriers to dominant systems in networks are massive.

Now it can well be argued that it is after all Microsoft which has invented this product, and it should be allowed to reap the benefits of its innovation. True enough, and there should be no bar to Bill Gates enjoying the royalties from Windows. The trouble starts if he uses his dominant position in Windows to give away other products along with it, in the process bankrupting competitors in these products. That goes for e-mail servers and browsers. In the short run, consumers gain, but innovation may be squashed. And when the competition has been neutralised, where's the guarantee that Bill won't raise prices?

That guarantee, however, may be provided by the rapid pace of innovation. Sun Microsystems has for long been preaching that the PC is soon to become dinosaur. Now that products and packages and even operating systems are easily available on the Net, often for free, Microsoft's monopoly in Windows doesn't help. As an industry executive has stated, "the Internet gives people a platform to do most of the things they need to do on a PC without a cumbersome and expensive operating system."

In other words, the pace of change is so fast in the industry that whole new ways of doing things are found, which make obsolete the old standards. According to this argument, the speed of change itself guards against the predominance of a monopoly. To be sure, one way monopolists benefit is to stifle innovation in the market. But what if the pace of technical development changes the market itself? A monopolist coach-maker will soon be put out of business by a car-manufacturer; and a monopoly in making candles will be worse than useless when electricity comes to a town.

So where do regulators draw the line? In the age of the Internet, with competition a mere click away, can there ever be a monopoly? These are the questions which will be decided by the Microsoft case. The irony is that, by the time the case is finally disposed of (at least a couple of years if it goes to the US Supreme Court), the market itself may have changed beyond recognition.