Does Microsoft Cause Lower Software Prices?

AngusSF writes "OK, slashdotters, , so is this FEE article Antitrust Benefits Consumers? It Just Ain't So! true?" AngusSF quotes from the article: "... as Stan Leibowitz and Steve Margolis have shown in their book, Winners, Losers and Microsoft, in virtually any market that Microsoft has entered (financial software, spreadsheets, etc.), the effect has been a dramatic reduction in prices and an expansion of output and innovation. Software products that do not compete with Microsoft's products fell in price by 12 percent from 1988 to 1995, but by 60 percent where there was competition from Microsoft.", and writes "I'd really like to see some on-line evidence of this. Has Microsoft competition in office suites really cut prices there?"

Comments

monopolistic trends

[potpie]

A monopoly produces and prices according to it's production possiblities curve (I think that's what it's called) whereby it produces the most for the least cost and charges to maximize profits. But because there is little competition, they are able to charge less and make more money. Thus, any company trying to compete with the monopoly would have to lower its own prices, reducing its profits, just to keep up. Correct me if I'm wrong; it's been a while since I took economics.

Re:Correct. A classic monopolist example

[onepoint]

What you are saying is true, but the overal picture, is the long term growth of the market.

standard oil is a classic example of reduced volitility of oil prices, standards or production, refinement of product, and quality improvement.

Now we know what happened to standard oil, Breakup. There is good chance that it will happen again with MS. But like Standard oil, it will take anyware from 15 to 30 years ( history points that the Cry of Monopolist was already shouted to standard oil by 1885 if not prior to that )

Onepoint

Let the Monopoly Grow!

[GISGEOLOGYGEEK]

I wish MS would enter the fields of GIS / Mining / and CAD software.

If the trend is true, then the days of spending anywhere from 4 to 80 THOUSAND dollars for a ONE seat license on these specialty softwares would end.

You think the MS monopoly is bad? you pay nothing compared to what Autodesk, ESRI, and others charge.

Re:correlational!

[protohiro1]

They are a very old Libertarian think tank. They have an agenda and an axe to grind. They believe that all legislation regulating the economy is bad. It would be unlikely that they would reach a conclusion that anti-trust laws are a good thing.

There is another aspect

[einhverfr]

I think that Microsoft *has* caused prices to go down dramatically to the point where the *only* viable competition can be open source. Here is my reasoning (I am a businessman, not an economist but the two have some overlap sometimes).

When you develop proprietary software, you absorb the entire cost of R&D as well as marketing in advance, and then you sell licenses in order to make that money back, along with a profit margin. The actual boxed sets only cost a few dollars to produce, but the research and development is where the major costs are, and these dwarf the production costs pretty heavily.

So, if you can sell twice as many of something than your competitor, you can actually sell the product at a lower cost than your competitor's break even point. I believe economists call this "economy of scale." You can even do this at the same that you use some of the profits to subsidize research and development of other projects. Whether this is predatory or not I will leave to lawyers and the courts (I suspect the answer is "it depends").

Now, if you are a company which is smaller than MS, you cannot compete with Microsoft on the basis of volume. So Microsoft is able to develop (often better) software faster because they already have achieved scale in these markets. The other companies cannot compete and they slowly sink into obscurity (re: Corel, etc). Some of this may be predatory, and the rest is the fact of the market. So, the result is that you cannot beat Microsoft at their game if you play by their rules. They are bigger and they will *always* win because they can make money on a more marketable product at a lower price than you can.

So, what about competition? Is there no hope? Actually there is. Open source actually is more efficient at spreading the development effort around so that needed features get added with less general expense. Therefore the pace of popular open source projects easily dwarfs Microsoft's, the total cost of ownership is lower, etc. Linux, OpenOffice, Mozilla, etc. actually beat Microsoft at their own game by reinventing the rules (which is what all successful businesses and projects do anyway). So open source will reduce costs even further to the point where Microsoft cannot be profitable and compete.