Opinion Editorial | |
| Wednesday, June 3, 1998 | |
Evidence of a Computer Industry Manopoly Lacking |
Following the Justice Department's well-publicized attack on computer
software giant Microsoft, the Clinton Administration now plans to turn its
fire on Intel, the big computer chip maker. Shortly, the Federal Trade
Commission is expected to announce charges against Intel for monopolizing
the computer chip market. Computer chips are the heart of all personal
computers and 85 percent of them are manufactured by Intel. Thus in the
space of just a few weeks, the Clinton Administration has taken aim at the
two pillars of the personal computer industry, software and computer chips. The Clinton Administration attack on Microsoft and Intel is clearly motivated
by ideology, rather than economics. This is shown by the fact that computer
chip prices and software have been falling for years, even as their quality
and reliability have increased enormously. This is not the normal behavior
of monopolistic markets. Ordinarily, the argument for antitrust policy
is to prevent monopolists from gouging consumers with excessive prices or
resting on their laurels and resisting innovation. Clearly, neither of
these concerns seem to apply to the computer market today. According to the Commerce Department, quality-adjusted prices for computer
memory chips have been declining almost continuously for 25 years. They
declined at a 37 percent annual rate from 1974 to 1985 and at a 20 percent
annual rate since 1985. In 1996, the most recent year for which there is
complete data, the price of memory chips fell 46 percent. As a consequence,
the equivalent memory chip that sold for $1,778 in 1974 cost just 47 cents
in 1996. Microprocessor and software prices have also declined sharply. The Commerce
Department figures show microprocessors declining by an average of 35 percent
per year since 1985. In 1996, they fell 60 percent. The price for equivalent
microprocessors fell from $7.24 in 1985 to just 6 cents in 1996. Unfortunately,
there is no similar data for prices of software. However, a recent study
of the software industry by the Congressional Budget Office cites a number
of studies that have found software prices falling between 3 percent and
15 percent per year on average. As a consequence, prices for personal computers have fallen sharply.
For a few hundred dollars one can now buy a computer that would have cost
thousands just a few years ago. Today children play on computers that exceed
the computing capacity of the largest computers on earth 40 years ago.
As a result, computers have become pervasive in almost every facet of business
and our personal lives as well. Many economists believe that the rapid
and widespread penetration of computers into our society is a major explanation
for the high productivity and economic growth we have enjoyed in recent
years. Notwithstanding these facts, the Clinton Administration has chosen to
undermine the very foundation of the computer industry with its attacks
on Microsoft and Intel. The consequences could be devastating. According
to economist George Bittlingmayer of the University of California - Davis,
a similar antitrust initiative by President Herbert Hoover's attorney general,
William Mitchell, announced on October 25, 1929, may have triggered the
Great Depression. In 1929, the radio industry had a similar economic importance to today's
computer industry, and it was the major focus of the government's attack.
Subsequently, companies heavily involved in that industry -- Westinghouse,
General Electric and RCA -- were in the forefront of the stock market crash
that took place on October 29, 1929. This is not to suggest that the Clinton Administration's attacks on Microsoft
and Intel will have the same result. But it does suggest that misguided
antitrust policies may have consequences far beyond those contemplated by
government lawyers. With many analysts believing that the stock market
is currently overvalued, the threat of a breakup of Microsoft and Intel
could well trigger a major sell-off. Source: Bruce Bartlett (senior fellow, National Center for Policy Analysis),
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