Economic Experts Challenge Underlying Assumptions in Government’s Case

WASHINGTON, D.C., October 16, 1998 — Several leading economic experts today told a group of journalists that the government’s antitrust lawsuit against Microsoft is depending on theories that are not supported by the realities of the marketplace or by current economic research.

In a thoughtful two-hour discussion moderated by Charles (Rick) Rule, an expert in antitrust law and former assistant attorney general in charge of the Antitrust Division of the U.S. Department of Justice, economists showed example after example of how government allegations that Microsoft’s business practices foreclose competition and harm consumers are not consistent with what actually takes place in markets where Microsoft competes.

Ronald Cass, dean of the Boston University School of Law and former vice-chairman of the U.S. International Trade Commission, called the government’s lawsuit against Microsoft “a cure in search of a disease.” He said many of the government’s arguments are illogical because [Microsoft’s] . . . contracts really do benefit society as a whole” and “generate consumer value.”

Stanley Liebowitz, professor of managerial economics in the School of Management at the University of Texas, showed a series of slides based on 10 years of research that debunked many commonly held beliefs about so-called “network effects” by demonstrating an unwavering correlation between product quality and market share — not only in software markets but in all markets.

Citing research, Liebowitz disagreed with Microsoft’s critics, who often claim that Microsoft wins market share with inferior products by leveraging its position in one market to succeed in another. He showed repeatedly how market share for Microsoft’s products – or any other product — always rises or falls in direct correlation to the technical quality of the product, as measured by the number of product reviews it wins compared to competing products.

Liebowitz also refuted misleading statements about Microsoft’s product pricing, showing that software prices always fall dramatically in markets where Microsoft competes – to consumers’ benefit — while prices decline less quickly and not as much in other software markets.

“I think that the government would have a very hard time trying to make a case that Microsoft is actually charging a monopoly price for its products,” Liebowitz said.

Also participating in the discussion were Kevin Murphy, the George P. Schultz professor of business economics and industrial relations at the University of Chicago and 1997 recipient of the John Bates Clark Medal, which is awarded every two years to the most outstanding American economist under 40; and David Mills, professor of economics at the University of Virginia.

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