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Date:      Mon, 15 Nov 1999 20:21:28 -0800
From:      "David Schwartz" <davids@webmaster.com>
To:        <walton@nordicrecords.com>
Cc:        <freebsd-chat@freebsd.org>
Subject:   RE: Judge: "Gates Was Main Culprit"
Message-ID:  <000001bf2fea$0d9207b0$021d85d1@youwant.to>
In-Reply-To: <19991116040408.17557.qmail@modgud.nordicrecords.com>

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> "David Schwartz" <davids@webmaster.com> writes:
>
> >         When you are dealing with an anti-trust case, you are
> > looking to find, and fix, monopoly harm. The theory is that a
> > monopoly is capable of doing things that a more competitive
> > market would not allow. The three chief types of monopoly harm
> > are reduced quality, reduced output, and increased prices.
> >
> >         The part that I was talking about was increased prices. So
> > the question is, is the price of Windows high because Microsoft
> > enjoys a monopoly position and could charge whatever it wants.
> > And my answer was, no, because the price of Windows is
> > reasonable considering the effort expended to develop it, market
> > it, maintain it, support it, and research future developments.
>
> Microsoft considered those factors, calculated a reasonable price,
> and then decided to nearly double that price simply because the
> lack of a competitive market allowed them to.

	Right, because if they don't maximize revenue, they won't be able to do the
research needed to keep Windows competitive. The software market is
sufficiently dynamic that Windows has to become almost an entirely new
product every two years to maintain its status as market leader.

> Paragraph 62:
>      Microsoft's actual pricing behavior is consistent with the
>      proposition that the firm enjoys monopoly power in the market
>      for Intel-compatible PC operating systems. The company's
>      decision not to consider the prices of other vendors' Intel-
>      compatible PC operating systems when setting the price of
>      Windows 98, for example, is probative of monopoly power. One
>      would expect a firm in a competitive market to pay much closer
>      attention to the prices charged by other firms in the market. [...]

	Actually, they Microsoft's pricing is consistent with a firm that needs to
spend massive amounts on research and development to keep its products
competitive. Yes, they maximize revenue (as every firm does) primarily to
allow them to maintain Window's competitiveness. This is far different from
the type of price raising that is monopoly harm.

> Paragraph 63:
>      Finally, it is indicative of monopoly power that Microsoft felt that
>      it had substantial discretion in setting the price of its Windows
>      98 upgrade product (the operating system product it sells to
>      existing users of Windows 95). A Microsoft study from
>      November 1997 reveals that the company could have charged
>      $49 for an upgrade to Windows 98  there is no reason to

	Would does this "could have charged" mean? They could have given it away
for free.

>      believe that the $49 price would have been unprofitable  but
>      the study identifies $89 as the revenue-maximizing price.
>      Microsoft thus opted for the higher price.

	I'm not sure I believe that. Personally, I think Microsoft set the price
far above the revenue-maximizing price. Heck, the more people who use
Windows the more people they can sell Microsoft office too, right?

	Of course, every company sets its prices at the revenue-maximizing price.
If Microsoft didn't do that, their management should be fired. The biggest
balancing factor for Microsoft is that the more expensive Windows is, the
more incentive there is to market and develop alternatives to it.

	To the extent that Windows is a monopoly, it is a temporary one. Much as
vinyl records were a monopoly for awhile, soon replaced by cassette tapes,
now replaced by CDs, and probably soon to be replaced by some other format.
Microsoft will do everything possible to maximize the amount of time its
operating systems matter, but ultimately, there will be nothing it can do --
it will have to invent a new product or lose its market share.

	This is not the type of monopoly that the anti-trust laws were meant to
prevent. They were supposed to stop a static monopoly, where a company can
charge whatever it wants and sell whatever it wants. Microsoft can't do
that.

	DS



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