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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?"
(just in case the server dies...)
Antitrust Benefits Consumers? It Just Ain't So!
Published in The Freeman: Ideas on Liberty - January 2001
by Thomas J. DiLorenzo
Robert Litan, vice president and director of economic studies at the Brookings Institution and a former adviser to Janet Reno on the Microsoft antitrust case, recently authored the stereotypical Washington Post economic policy op-ed: virtually void of elementary economic analysis while uncritically promoting more and more government intervention ("Fair Use of Antitrust," September 13, 2000).
Mr. Litan claims that the antitrust laws allow companies to "gain dominant positions in their markets" only "if they do so fairly." But the word "fairness" appears nowhere in the antitrust laws; this is a recent invention of socialist-minded policy wonks like Mr. Litan. Moreover, it is extraordinarily naïve of anyone calling himself an economist to believe that such a charge would even be a desirable part of the antitrust laws: Competitors will always whine and cry about how the price-cutting, product-improving, and customer-satisfying practices of their more successfull rivals are "unfair." This in fact is the modus operandi of antitrust: The antitrust laws provide a means by which sour-grapes competitors can achieve through politiics what they fail to achieve in the marketplace.
Mr. Litan commits what Hayek called the "fatal conceit" of believing that government bureaucrats, rather than entrepreneurs and consumers, are in the best position to decide what constitutes a "legitimate business purpose." Microsoft got into trouble, he argues, because it "ran afoul of this simple maxim." The maxim is indeed simple, but it is unequivocally false. Neither economists nor politicianns nor policy wonks are capable of deciding the most "efficient" size or configuration of any business enterprise. As Ludwig von Mises once explained, "The question to be decided is: Who should determine the size of the enterprises, the consuumers by their striving to buy what suits them best or the politicians who know only how to tax away and to spend?"*
* Ludwig von Mises, "Small and Big Business," Economic Freedom and Interventionism (Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1990), p. 221.
By adhering to this false "maxxim" antitrust regulators are attempting to supersede the informed judgment of millions of consumers with the opinions Janet Reno and her former antitrust sidekick Joel Klein. Just how damaging this has been to consuumers is revealed by several plain facts. First, in a poll of adult computer users taken by USA Today, only 6 percent said that "reducing Microsoft's influence" was a "major isssue" to them. Most consumers love Microsoft's products.
Second, 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 pricees and an expansion of output and innovation. Software products that do not compete with Microsoft's products fell in price by 12 perrcent from 1988 to 1995, but by 60 percent where there was competition from Microsoft.
Third, the government is clearly unconcerned about conssumer welfare in its prosecution of Microsoft: In Judge Thomas Penfield Jackson's November 1999 "Statement of Fact" he devoted a mere five out of 412 paragraphs to the isssue of consumer welfare.
Mr. Litan, like his former employer Janet Reno, simply ignores that Microsoft has provided incredible benefits to consumers. He rests his case on the lame notion that, in his opinion, the commpany's management had "anticompetitive motives." Economic analysis may not be Mr. Litan's strong point, but mind-reading apparently is. He claims that such a malevolent "intent" has harmed Microsoft's competitor Netscape by keeeping it from competing in the Web browser market. In fact, Netscape has distributed more than 150 milllion copies o
I am sure that during the initial phase, Microsoft's prices are so low that it drives competitors' prices down too. As with the Xbox, where they use their monopoly rent to pay for losses in the console area. This is called price gouging. Unfortunately. once their competitors are driven out or into niches, do not expect the prices to stay low: there is no longer any market pressure to do so. This is one of the ways monopolies operate.