MS/DOJ: Windows not overpriced, witness says

Computer World –

WASHINGTON -- Microsoft Corp.'s chief economics witness today attacked the U.S. government's conclusion that the software giant charges monopoly prices for its Windows operating system software, during what may be the last week of the antitrust trial.

Richard Schmalensee, dean of the Sloan School of Management at MIT, said the government's economist underestimated the average price of PCs and other figures in making his calculations about the cost of Windows to consumers. Schmalensee, testifying as Microsoft's final rebuttal witness, testified that the true monopoly price of Windows would be around $265 per copy. Microsoft charges around $65 per copy to computer manufacturers.

"Either the plaintiffs are wrong or Microsoft has been for a long time leaving a lot of money on the table," Schmalensee testified. "I find the latter conclusion implausible."

Not likely to leave money on the table

A more plausible explanation, he said, is that Microsoft is charging less than it could because "it has to be concerned with its long-term competitive position" in a market that is rapidly changing.

After the end of his direct examination this morning, Schmalensee came under questioning from the U.S. Department of Justice's outside counsel, David Boies, about how much money he has earned by working with Microsoft during the past seven years. Schmalensee maintained that he couldn't put a dollar figure on the amount. But under continued questioning he said he earns $800 per hour, received a $200,000 bonus from an economics firm he works with last year and has earned more than $250,000 for his work with Microsoft during the past two years alone.

The line of questioning was payback, in essence, for the line of questioning Microsoft's attorneys opened with the government's economist, Franklin Fisher, also at MIT, when he testified several weeks ago. Microsoft attorney John Warden asked Fisher whether he had any conflict of interest because he serves as chairman of an economics consulting firm, Charles River Associates Inc., which may represent competitors of Microsoft in civil suits that could result if the company is found to have a monopoly.


Fisher, when he testified, hit every element of Schmalensee's earlier testimony -- his economic analysis, judgment and data -- characterizing it in parts as "muddled," "mixed up," "confused" and even "ridiculous." Schmalensee today questioned Fisher's estimate that the average PC costs around $950, noting that price excludes a monitor and is based on retail sales.

Schmalensee will continue to be cross-examined this afternoon. He is expected to be the final witness in the antitrust case against Microsoft, which began last October and has included 24 different witnesses. After testimony concludes, which could be as soon as tomorrow, each side will have at least 30 days to file written "findings of fact" to the judge. The judge will then hear oral arguments and later issue his own findings of fact, which will perhaps tip his hand as to what his ultimate ruling will be in the case.

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