NCPA - National Center for Policy Analysis

The Anticompetitive Effects Of Antitrust Action Against Microsoft

October 3, 2000

Breaking Microsoft into two companies would cost American consumers more than $50 billion in higher software prices and reduce competition in important technology sectors, says a new study by Stan Liebowitz of the University of Texas.

Among the conclusions of the study, sponsored by the Association for Competitive Technology, an industry group:

  • The federal government's proposed antitrust remedy against Microsoft would lead to higher software development and support costs, hinder innovation of Windows operating systems, and create a complex, confusing marketplace for PC consumers.
  • American consumers would pay an additional $50 to $125 billion for computer software over a three year period if the new companies choose to revert to typical industry practices and reject the current low pricing strategies of Microsoft.
  • Worldwide, consumers are likely to pay from $125 to $310 billion in added software costs over the same period.
  • Ironically, the split of Microsoft into an operating system company and a separate applications company would effectively reduce competition in the high-end server, database and workstation markets.

Regarding the last point, Liebowitz says Microsoft's presence in these markets keeps prices down, enhancing competition and benefiting business consumers, much to the dismay of its principal competitors, Sun, Oracle and IBM. But the government's proposed antitrust "remedy" would make it illegal for Microsoft to continue offering its server software and operating system as a tightly-integrated product for small businesses. Thus the government's approach would reduce competition, in direct opposition to the best interests of consumers.

Source: Stan J. Liebowitz, "An Expensive Pig in a Poke: Estimating the Cost of the District Court's Proposed Breakup of Microsoft," September 25, 2000, Association for Competitive Technology, 1225 Eye Street N.W., Suite 500, Washington, D.C. 20005, (202) 331-2130.


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