Group accuses Microsoft of price gouging

A consumer group has accused Microsoft Corp. of overcharging Windows users by $10 billion in the past few years, a charge that hits at an issue said to be one of the weakest parts of the government's anti- trust case: Has Microsoft hurt buyers?

A consumer group has accused Microsoft Corp. of overcharging Windows users by $US10 billion in the past few years, a charge that hits at an issue said to be one of the weakest parts of the government's anti- trust case: Has Microsoft hurt buyers? In the 11 weeks that the U.S. Department of Justice pleaded its case, its witnesses claimed Microsoft's allegedly monopolistic actions have harmed software users.

But that 'harm' has been conceptual, without a splashy, hard-dollar figure attached to it. For example, if Microsoft's contracts squelched competition, then buyers of software have been deprived of choices and maybe lower prices, the government has argued. To fill the gap, the Consumer Federation of America (CFA), a 31-year-old nonprofit group in Washington, analyzed court documents, industry averages and other data to try to prove that Microsoft has kept the price of its Windows operating system artificially high.

Specifically, the CFA examined Microsoft internal E-mail and memos submitted as evidence during the trial, as well as data on sales, profits and costs for the software industry as a whole. Among the group's conclusions: Microsoft's profit margins are higher than any other software company. Each copy of Windows costs PC makers $US25 to $US45 too much -- costs that ultimately have been passed along to end users. But some crucial data is missing -- namely, how much it actually costs Microsoft to produce Windows, according to James Brock, an economics and antitrust professor at Miami University in Oxford, Ohio. Trial evidence indicates that most PC makers pay $US50 to $US60 for each copy of Windows. Some big Microsoft partners, such as Compaq Computer Corp., pay less. Still, no one should pay more than $US15 to $US25 per copy, said Mark Cooper, director of research at the CFA.

Even allowing for a more complicated and expensive development process over the years, Windows sales have been so great that it should be priced far below what it has been, Cooper maintained.

Microsoft sold nearly 100 million copies of Windows last year, he said. "All the evidence that I can find says the price of software has always gone down -- but not at Microsoft," Cooper said. "I don't see anything inherently flawed with [the CFA analysis] as long as you read it as an approximation," Brock said. That super-secret development-cost information -- to the extent it can be extrapolated from databases retrieved by Justice Department investigators from Microsoft headquarters in Redmond, Washington -- was kept from public eyes last week. Judge Thomas Penfield Jackson accepted Microsoft's argument that the information was too sensitive to air in open court.

Microsoft blasted the CFA study. "The price of Microsoft's PC operating system has been virtually the same for over a decade," the company said in a statement last week. Yet internal documents revealed at the trial appear to contradict that view. In one example, E-mail from a key Microsoft executive acknowledged that "we have increased our prices over the last 10 years".

Join the newsletter!

Error: Please check your email address.
Show Comments
[]