NCPA - National Center for Policy Analysis

Microsoft Is Competitive, Not Monopolistic

September 3, 1999

The Justice Department's antitrust suit against Microsoft alleges the software company is attempting to monopolize software markets by leveraging its dominance in personal computer operating systems into dominance of other software markets. If Microsoft were able to achieve a monopoly, it would be able to increase its profits by raising prices and/or cutting production.

But there is no evidence for the theory, say economists Stan J. Liebowitz and Stephen E. Margolis. In fact, the evidence shows high-technology markets are very competitive, and although one product tends to dominate a market for a time, good products replace bad ones very quickly. For instance,

  • Surveys of magazine reviews show Microsoft's Excel spreadsheet program surpassed Lotus 1-2-3, and Microsoft Word for Windows overtook WordPerfect, only after each had conclusively proved itself to be the best quality product on the market.
  • Of the 15 major consumer software categories defined by Dataquest, in the five software categories where Microsoft did not have a product, prices fell by an average of 15 percent from 1985 to 1995, with several periods of price increases.
  • But in the 10 categories where Microsoft had a product, prices fell by an average of 65 percent.

Microsoft dominates software markets, not through the exercise of monopoly power or by leveraging its Windows operating system, but only when it has the best products.

  • When its products have been inferior, Microsoft has failed -- for example, Microsoft Money has not taken market share from Quicken, which gets the best reviews for personal finance software.
  • In online services, American On Line (AOL) has grown faster, and it is larger, than Microsoft Network (which consistently scores poorly in reviews).

Interestingly, even Microsoft's most widespread product, the Windows operating system, is sold for much less than what economists estimate its monopoly price would be.

Source: Stan J. Liebowitz and Stephen E. Margolis, Winners, Losers & Microsoft: Competition and Antitrust in High Technology (Oakland, Ca.: Independent Institute, 1999), Independent Institute, 100 Swan Way, Oakland, Calif. 94621, (510) 632-1366.


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