NCPA - National Center for Policy Analysis

No Evidence Of A Computer Industry Monopoly

June 3, 1998

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, charging Microsoft and Intel with monopolistic practices.

The argument for antitrust policy is to prevent monopolists from gouging consumers with excessive prices or resting on their laurels and resisting innovation. However, computer chip and software prices have been falling for years, even as their quality and reliability have increased. This is not the normal behavior of monopolistic markets.

  • According to the Commerce Department, quality-adjusted prices for computer memory chips declined at a 37 percent annual rate from 1974 to 1985 and at a 20 percent annual rate since 1985.
  • In 1996, the price of memory chips fell 46 percent; thus the equivalent memory chip sold for $1,778 in 1974 cost just 47 cents in 1996.
  • Also, Commerce Department figures show microprocessors -- the "brain" of a computer -- declining by an average of 35 percent per year since 1985, and by 60 percent in 1996. Thus the price for equivalent microprocessors fell from $7.24 in 1985 to just 6 cents in 1996.

Furthermore, 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.

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.

Source: Bruce Bartlett (senior fellow, National Center for Policy Analysis), June 3, 1998.


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