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Media Contacts:
Dr. Steve Margolis, 919/513-2565 or [email protected]
Sara Frisch, News Services, 919/515-3470 or [email protected]
June 6, 2000
Economist Says Microsoft Break-Up Will Raise Prices, Harm Innovation
Carving Microsoft into two, three or four pieces will likely hurt consumers and Microsoft shareholders alike, says a North Carolina State University economist who has studied the world's largest software company. Dr. Stephen Margolis, professor and head of the economics department at NC State, is the co-author of the 1999 book Winners, Losers & Microsoft: Competition and Antitrust in High Technology.
U.S. District Court Judge Thomas Penfield Jackson is expected to rule soon on remedies after finding earlier that Microsoft violated federal antitrust law. The U.S. government has proposed a remedy of splitting the company into two parts, and independent economists have suggested to the court a three- or four-way split.
"The government's plan will harm consumers, and it will confiscate significant wealth from Microsoft's shareholders," Margolis says. A two-way breakup will likely lead to higher prices, a point which has been made by economists on both sides of the case, he says. "While not a certainty, the tendency is that when two complementary goods are each sold by a different firm, the prices of each good will be higher than if a single firm sells both goods.
"For consumers," Margolis says, "the more important and more lasting problem is that the split will make Microsoft less effective at creating software."
Margolis calls the government's proposal a "sweeping re-engineering of the computer software industry." He says, "The supposition that a company as complicated as Microsoft can be re-engineered by outsiders without any loss of efficiency runs contrary to much of what economics teaches about the organization of firms." The proposed remedies go beyond addressing the violations of the law found by Jackson, said Margolis.
Winners was written by Margolis and Dr. Stan Leibowitz, an economist at the University of Texas at Dallas, and published by The Independent Institute of Oakland, Calif. The book asserts that Microsoft actually lowered prices after it achieved market dominance. That dominance is based on superior products, not monopolistic practices, say Margolis and Leibowitz.
--frisch--
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