- June 15 - Microsoft is charging monopoly prices for its operating system, resulting
in consumer overcharges of tens of billions of dollars, according to an analysis
filed with the Joint Economic Committee (JEC) by the Consumer Federation of America
Filed for the record in
the JEC's hearings on high technology industries, CFA's letter urges the Committee
to look at market structure and economic conditions in the software industry,
as well as technological developments.
"These industries are not
only vital technology sectors of the economy," Dr. Mark Cooper, CFA's director
of research, said, "they are also rapidly becoming a major consumer expenditure,
with tens of millions of units being purchased. The evidence in the antitrust
trial demonstrates that in the competitive market of the 1980s operating system
prices were falling by 8 percent per year, but once Microsoft gained monopoly
power in the 1990s it reversed that trend, raising prices sharply -- by about
13 percent per year.
"In a competitive software
market economies of scale from expanding production and advances in software engineering
resulted in both dramatic increases in quality and dramatically declining prices,"
Cooper said. "That is the consumer-friendly environment that Microsoft's monopoly
erased. The Committee should be at least as concerned about restoring competition
to the Desktop operating system market as it is about promoting technology."
"Given the trends we see
in prices and shipments, we fear that our earlier estimate of $10 billion in overcharges
could be far too low," Cooper added. "Another $10 billion could be added before
the case is finally decided on appeal."
The CFA letter presents
preliminary results extending an important aspect of the Department of Justice's
(DOJ) rebuttal case. The DOJ's lead economic witness showed that Microsoft is
capturing a substantial part of the monopoly profits that are available to it.
CFA points out that empirical evidence on prices, price elasticities, and revenues
already in the case not only supports the government's view but also that applying
Microsoft's own strategic pricing analysis shows that it is capturing virtually
all the available rents.
"A century ago, vigorous
antitrust efforts by the U.S. government against industrial monopolies and oligopolies
helped ensure twentieth-century economic progress," Cooper concluded. "In today's
information age, restoring competition to the software industry is crucial to
our economic success in the twenty-first century and to protecting consumers from
The text of the letter is
available on the Internet at:
The Consumer Federation of America is a non-profit association of some 240 pro-consumer
groups, with a combined membership of 50 million that was founded in 1968 to advance
the consumer interest through advocacy and education.