Microsoft's Pricing of Windows: A Reply to Reddy, Evans, Nichols, and Schmalensee
Despite arguments to the contrary, PCheterogeneity may go a long way towardexplaining why the price ofWindows might be as low as it is.
Microsoft's Pricing of Windows and the Economics of Derived Demand Monopoly
The economic experts in the Microsoft case debated whether Microsoft's pricing of Windows was consistent with Microsoft having a monopoly over personal computer (PC) operating systems. In this debate, PCs were treated as a single homogeneous commodity. This paper demonstrates that PC heterogeneity is likely to reduce substantially the monopoly price of Windows. The reason is that low-end PCs, which surely have the more elastic demand, are of disproportionate importance in determining the elasticity of derived demand for Windows.
Antitrust Issues in Schumpeterian Industries
A half-century ago, Joseph Schumpeter (1950 Chapters 5–8) presented a vision of modern capitalism in which monopolies are common but frequently swept aside by a “perennial gale of creative destruction” (p. 84). This gale is driven not by price competition, but by “competition from the new commodity, the new technology ... competition which strikes not at the margins of the profits of the existing firms but at their foundations and their very lives” (p. 84). I focus here on the personal-computer (PC) software (hereafter simply “software”) industry, which resembles this vision. I discuss some important issues this industry poses for antitrust policy and, in the final section, illustrate with examples from the Microsoft case.