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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?"
The classic behavior is that a company drives down prices to get rid of the competition (if its internal costs allow that), then raise prices after the competition is gone.
While MS has competition within a market (Word Processing comes to mind) their prices are very low. I recall Word selling for $99 back when it was competing with WordPerfect. Today, with essentially zero competition, it's $299.
Of course the counter-argument is Excel vs Borland's Quattro Pro: Excel was at $495 and QPro at $295, but despite great QPro reviews vs Excel purchasers thought QPro was not in Excel's league because it was too cheap!
Explanation: Microsoft discovered the popular application markets. So did a lot of other companies, quite independantly. There would have been price competition between everyone else, even had MS not entered those markets. The markets in which MS did not invest money aren't as lucrative (being more niche markets). There are fewer players in side markets, and as a result there hasn't been as much competition in those areas of software development.
Lesson: correlation != causation. If you're claiming causation, you better have damn good evidence. Would there not have been drastic price reductions in the spreadsheet market without Excel? Put it another way, what would the market look like without MS ever being involved? I have no reason to believe it would look any different than it does now.
Mark the article (-1, Troll).
This post expresses my opinion, not that of my employer. And yes, IAAL.
The traditional logic is that once Microsoft has attained enough market share prices will go up. Well, nope that is not what I seem to see happen. What I see happening is even more devious.
Microsoft enters a market and calculates a sweet price, a price where people will buy the product. Then it keeps that price and increases to cover inflation. Is there anything wrong with this? Absolutely! The problem is that Microsoft does not lower their prices after that.
In a normal market prices drop once new versions enter the market, etc, etc. Take a look at computers, cars, houses (not the properties, but building materials) and prices do drop.
Where prices do not drop is in controlled markets, like what Microsoft has, and what the music or film industry has. Also want to see another thing about these markets? There are some who make damm big bucks and tons of people who are just eecking out a living.
How do you change this? Consumers have the power to choose and they should use Open Source, buy "B rated" DVD's, and buy directly from unknown artists.
"You can't make a race horse of a pig"
"No," said Samuel, "but you can make very fast pig"
A good example of how Microsoft is effecting prices is in the consumer media formats.
Microsoft undercut MPEG-4 consortium's prices by offering licensing charges of 10 cents per encoder for its codec.
The MPEG-4 gropup charges 25 cents.
This led to protests from the MPEG-4 group including attempts to belittle Microsoft's codec in the press.
The price may be lower in real terms, but the same is true of nearly everything in computers and electronics -- in fact, I can't think of a single example where a product (hardware, software, etc.) is more expensive or even the same price in real dollars as it was 20 years ago. Hell, now you can buy a computer with more processing power than a 1985 mainframe for less than you paid (in 1985 dollars) for a Commodore 64.
The question is not whether prices have dropped, but whether they are artificially high. In other words, has Microsoft's monopoly position kept prices from dropping compared to what they would be if those prices were determined solely by supply and demand? There is no way of knowing for certain, but I would be willing to bet the answer is yes.
As an aside, Corel et al. aren't competing with a $499 product; they're competing with a product that is sold at its list price, sold at vast discounts, and widely pirated (e.g., free). It would make an interesting study, but my guess is that the prices of Microsoft's competitors are probably somewhere near the true market price given the wide range of the actual cost for Microsoft products.
The bigotry of the nonbeliever is for me nearly as funny as the bigotry of the believer. - Albert Einstein
Microsoft products are "good enough" and "cheap". When MS enters a given market, their products are never as good as what is out there, but they are cheap. Some example:
- DOS 1.0 was both significnatly worse and cheaper then CP/M
- Word v. Wordperfect, AmiPro, Wordstar... just about everything
- Excell v. 123, Quatro
- Windows 3.11 (for workgroups), NT 3.5, Windows 95 v. Netware, Banyan
- IIS v. *NIX w/Apache, BIND, etc
- Exchange v. Groupwise
- MS-SQL v DB2, Oracle, (flat text files)
- IE v Netscape
- Hyperterminal v everything else
This is not to say that these MS products have not since passed the quality of their competition, some have. Of course, in many of these cases it is because MS has driven the competition out of business compleatly.A recent review of OOo, the author made the comment "OOo will out Microsoft Microsoft". Compared to MS-Office, OOo isnt very good. But its good enough. And its a hell of a lot cheaper. Thus OOo will out Microsoft, Microsoft. The same is true to some degree with other projects like Samba.
So in response to the articles question: Duh. Thats what Microsoft does. They sell good enough crap for less, forcing companies who produce good stuff to reduce their prices, reduce their marketshare, or die.
Driving your competition out of the marketplace isn't a PERMANENT condition - if it took below-cost prices to take over the market, it'll take below-market prices to keep control of the market.
You're forgetting lock-in. Once a company has a monopoly, it can set it's own standards and doesn't have to worry about interoperability with other people's software, and can use it's own position to make interoperability with itself as hard as possible.
Take microsoft office for example; competitors not only have to be free (or at least much cheaper) to even get into the market at all, they have to work with non-standard undocumented office files.
IE is another; look at how many sites only render properly in IE because people have coded to it's broken implementation of CSS and java, rather than go the extra mile to code to standards AND IE's cackhanded version of them.
Hell, look how microsoft is using it's desktop monopoly to push windows media player and it's DRM codecs. Only a couple of a days I had a student who lost all his recorded wma files because he didn't realise DRM was on by default, and now his backups are worthless because he didn't backup the licence files too. By making windows media codecs the default for all windows users, they're starting to push out the competition.
Assuming they succeed, there's nothing to stop them sticking to form and making longhorn only able to work with Windows Media drm formats, thus forcing you to stick to windows (and its media player) if you want to access your own music or home videos, or listen to internet radio, or watch internet films.
Lock-in lets monopolies keep their position without lowering prices, or innovating, or improving quality.
And before someone says it, no, IE and WMP are not free. You just pay it as part of the tax when you buy a new PC that's very hard to get without windows (and it's only the courts that have made even that possible, given microsoft used to use OEM agreements to make every computer ship with windows.)
I also disagree that microsoft has lowered prices. Last I heard, microsoft made 80%+ profit on windows. Windows 95 cost £39. Windows XP Pro costs £151. And the CAL costs... wow, they've gone up a lot. 5 years ago, I paid £5 a seat for NT licences. Now, at a school, we're expected to pay £30 a seat. I don't think inflation is that bad.
Remember kids, it's all fun and games until someone commits wholesale galactic genocide.
This is probably true enough, however, you are leaving out an essential fifth step:
5. Keep prices high enough for long enough to cover the cost of steps #2 and #3.
Because, you see, once you've done step #4, you give competitors a reason to enter the market. Then you have to go back to steps #2 and #3 again, further pushing into the future the completion of step #5, which is the only one which can justify all the other steps.
Show me an example of all five steps happening, and I'll believe your assertion that this is actually a problem.
-russ
Don't piss off The Angry Economist
Until the population notices that the bread is of very poor quality like the rest of their mass produced cheap food after which they can only conclude that paying less made them fat.
cheap food = cheap nutrition = expensive & serious health consequences.
I'm not an economist, but I think this is a classic monopolist example.
Consider an area with many small bakeries. A big company goes in and opens bread shops with lower prices so the small shops have to close.
Good for the consumers? No.
If this were true, that would suggest that Walmart is bad for consumers. From many economists' points of view, this is simply not true; Walmart brings and maintains low prices.
The negative effect of Walmart, Microsoft, and other monopolists is that while the prices of goods often go down, the diversity of local vendors dimishes, and the remaining local businesses are mostly no longer owned by local businessmen. Locally owned businesses are driven out of the economy, so the money the local people bring into their local economy goes right back out of the economy through the almost always non-local monopolist.
People who view monopolies as positive don't view the annihilation of successful local economies as negative. This is the common approach in US economics, where the significant measures of an economy are considered to be average wealth, and average global quality of life, rather than median wealth and quality of life.