, 2000

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JUNE 15, 1999  7:00 AM
Consumer Federation of America
Mark Cooper, 301-384-2204
Microsoft Monopoly Pricing Costs Consumers Billions, Consumer Group Tells Joint Economic Committee
WASHINGTON - 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 (CFA).

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 pricing abuse."

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.


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