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The Cost of Microsoft's Monopoly Pricing
Microsoft has claimed in various articles that the Windows 95
operating system is competitively priced. Since I would expect
that the Microsoft monopoly would artificially sustain higher
prices for the OS, I did a little bit of research to determine
what the truth is.
I do not know how to determine the "proper" price for
an OS, but I figured that the price of a product in a competitive
market should vary about the same as similar products. Accordingly,
I compared the inflation rate of top-selling PC software in 1996
to 1998 and compared it with the inflation rate for Windows 95.
Not surprisingly, the average price that consumers paid for software
applications other than Windows 95 declined some 13% during these
two years. The average Windows 95 price, however, increased some
5%A.
| Application |
|
|
|
| Norton Antivirus |
|
|
37% |
| Norton Utilities |
|
|
11% |
| Quicken |
|
|
9% |
| Quicken Deluxe |
|
|
3% |
| TaxCut |
|
|
23% |
| TurboTax |
|
|
6% |
| TurboTax Deluxe |
|
|
-2% |
| VirusScan |
|
|
19% |
| Average decrease |
13% |
| Microsoft Windows Upgrade |
|
|
-5% |
This is particularly ironic considering Bill Gate's boast that the cost of computing has "fallen by a factor of 10m since the microprocessor was invented in the early 1970s."B Apparently he has not been doing his share.
What is even more damning is that Intuit, McAfee and Symantec have "steadily improved with new features and functions"C their software packages. However the retail version of Windows 95 has remained essentially unchanged since its introduction: consumers are paying more for the same, contrary to the usual economics of computers.
The above numbers can also give us some idea of the cost of the Microsoft monopoly to the American consumer. If 3 million consumers upgrade to Windows 95/98 this year, Microsoft pulls an extra $45.9 million dollars out of the computer economy. If 26 million Americans buy PCs with Windows pre-installed, Microsoft reaps some $165.6 million in monopoly profits (assuming the OEM price has stayed constant at $49 per license) from PC manufacturers. With Microsoft's OS monopoly alone costing the U.S. economy over $200 million this year, it is easy to see why the Department of Justice's suit could benefit many more people than just Netscape.
APrices from PCData.com lists of business and personal productivity software in the First Half of 1996 compared to April 1998.
BThe Economist,May 30, 1998
CIbid
1This value for Norton Utilities was taken from the list for April of 1996 rather than the First Half of 1996 list.
2PCData gives prices of $86 and $88 depending on which list you use. I simply took the average.
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© Drew McCormick 1998