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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?"
Ever since Microsoft entered the desktop OS market, Linux felt so threatened that it's been giving away free source codes!
Rock that crushes, Paper & Scissors that don't matter.
No, they don't.
Are they the cause of cheaper software? Yes, they are.
this relationship looks correlational rather than causal. as the market for a certain type of home software expands, the price goes down. the same market force also attracts microsoft. both are the result of a common cause: the market.
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"I'd really like to see some on-line evidence of this. Has Microsoft competition in office suites really cut prices there?"
;)
Oddly enough... the price dropped 100% in the office suites arena.
That green slime had it coming.
Well this is ignoring other factors.
When you look at it you will see MS enters markets that already exist. They pick and choose and go in when things are getting popular
The thing this article misses is that also when things get popular open source people come in too and write their own versions for free. And they do it better than propriterary software usually.
Which is the real thing that drives prices down.
High margins and high profits only exist in really tiny niche markets that dont have many competitors.
Microsoft is just entering markets that also other competitors such as open source teams are entering and thus it is not just microsoft who is making prices lower. Somebody has not thought this through properly.
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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.
Esoteric reference.
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!
As to the pricing thing, well. Where I lived in England (really England, not meaning "any part of Britain"), Stagecoach (a bus company) rolled into town and set their prices at zero until all the other bus companies went out of business. Then they stuck their prices up to something slightly less than the old prices.
Sure, prices were lower but in getting there all competition had been destroyed and Stagecoach is no longer (especially since they got control of the trains too) under any pressure to ensure quality. So they don't.
It's the same with Microsoft: after they crap all over a market to kill all the competition they simply sit around and look for new ways to screw the trapped clients. Sure, the prices are lower, but quality is non-existant and customer service is some sort of joke.
IE is a good example: until Firefox came along it had basically been left to rot. It still doesn't actually manage CSS level 1 or 2 to anything like a decent level, or display PNGs correctly. Sure, browers are bloody cheap (free) but if you'd been waiting for MS to innovate you'd have been dead and buried before it happened.
TWW
"Encyclopedia" is to "Wikipedia" what "Library" is to "Some people at a bus stop"
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 existance of MSPaint doesn't seam to be making Photoshop more affordable.
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And why expect the prices to go up?
If the prices go up, then it becomes reasonable for another competitor to enter the market again, restoring competition. Microsoft isn't the only company with a war chest.
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.
Prices will go up not because competition got eliminated, but because you can't maintain those prices forever. The consumer benefits as long as manufacturers try though.
paintball
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"
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.
After the small companies close down, because of the lower prices from the big company, the prices are increased to higher than the small companies had before the big company went into the area!!
The profit from the high prices is used to undercut small businesses in the next area the big company takes over...
Now, replace a geographic area with a type of application (spreadsheet, writing, etc).
When Microsoft goes into a new area, they move their investments there. The speed of development in the old area goes down. (But while Msoft takes over an application area -- the speed and development is faster!)
The development speed for new revolutionary features of Internet Explorer or Office isn't high...
When there is competition in an area taken over earlier, lots of developers (paid by the monopoly profits from some other controlled area) are moved back into that place -- until the threat is gone.
So now, with Firefox, there will be development on Internet Explorer.
At any given time, it's better to use the monopolist product -- but in total it's never good for anyone, except for the monopolist.
Karma: Excellent (My Karma? I wish...:-( )
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.
1) A company comes up with a novel computer idea.
2) Microsoft ignores it while it is a 'fad', so the original company can more or less charge what they want.
3) The 'fad' becomes a trend, and Microsoft gets interested.
4) Using their overwhelming resources, Microsoft develops a competing product, at a much lower price. (This is in lieu of getting the technology by 'other' methods).
5) The original company laughs it off, since any Microsoft product version 1.x or 2.x is not really competitive, and sometimes horrible.
6) Over time, the Microsoft product gains technological and marketing credibility.
7) The original company tries to hold on, but the lower prices of the Microsoft product (plus the creeping featuritis of the Microsoft product) eventually lead to the companies demise.
8) The original company gives up, and releases all of their people. Naturally, Microsoft swoops in to skim off the cream of that crop.
9) Microsoft now owns 100% of the market.
10) Microsoft freezes development on the product and starts looking for another victim company to screw.
11) Rinse, lather, repeat.
This article seems like one of the worse excuses for journalism I've seen in some time. The author writes:
Competitors will always whine and cry about how the price-cutting, product-improving, and customer-satisfying practices of their more successful 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 politics what they fail to achieve in the marketplace.
This is a dreadfully dishonest characterization of anti-trust laws. Microsoft wasn't accused of success through fair competition. They were accused of a series of dirty tricks that have nothing to do with competing on a level playing field. These tricks include giving their customers discounts if those customers would design their own web sites so that non-MS browsers wouldn't work with them, and pushing PC makers into deals where they had to pay for MS licences, even for machines that were to be loaded with non-MS operating systems.
Neither economists nor politicians 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 consumers by their striving to buy what suits them best or the politicians who know only how to tax away and to spend?"
This is a strawman argument. Anti-trust laws aren't designed to limit the size or market share of companies; The are designed to limit companies from using monopolies or near-monopolies unfairly to exclude competition. As such, they are only targetted at companies that actually have monopolies or near monopolies. But I supposed it's easier for the unscrupulous to simply make up non-sense positions for their adversaries and to claim that their adversaries hold those non-sense positions than it is to argue against the positions their adversaries actually take.
By adhering to this false "maxim" antitrust regulators are attempting to supersede the informed judgment of millions of consumers
Even if we assume, for the sake of argument, that most consumers are informed enough to exercise informed judgement, those consumers can only use there judgement to decide among the choices they actually have. If I offer an OS at the same price as MS's and if customers can choose which one to purchase, customers can make a simple judgement about the qualities of the OSs. But if MS has strong-armed vendors into making my customers pay for MS-Windows in addition to my OS for any machine they buy, even if my OS is the only one loaded, then the consumer's choice isn't just about OS qualities, anymore.
Third, the government is clearly unconcerned about consumer 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 issue of consumer welfare.
This is just plain stupid. The point of Judge Jackson's "Findings of Fact" document was to describe the facts of the case, and not to concentrate on the social consequences of the facts. And in any case, the proper focus of a Judge is on the law and on the facts of a case. The author of this article is either showing his ignorance or his dishonesty.
He rests his case on the lame notion that, in his opinion, the company'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 keeping it from competing in the Web browser market. In fact, Netscape has distributed more than 150 million copies of its browser since 1995.
The author completely misses the point, and we are left to wonder if he did more than skim the "Findings of Fact" document. MS used the browse
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.
George Bush + Linux = "I will not let information get in the way of the fight against Windows"
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
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.
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