MS can control prices because it's ‘the only game in town’ – expert

So OEMs can complain, but they have to buy anyway, whatever the price

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Internet Security Threat Report 2014

Professor Franklin Fisher did a very much better job yesterday during the redirect examination by David Boies than under cross-examination, and made some effective, substantive points. He had apparently spent some 330 hours preparing for the case (for a fee of around $165,000 at his rates). To this, he'll be able to add the time he has spent on the stand, which will amount to six days, as his redirect examination was not finished on Tuesday as expected. David Boies asked him to give the bases for his conclusion that Microsoft had monopoly power in PC operating systems. Fisher replied that when OEMs were asked what would they do if Microsoft raised its prices: "These are the people who, when asked if Microsoft were to raise its price, where would they go? And the answer was no, no, no, they would stay with Windows. "There isn't any other choice. That's what the market demands. One of them is, as I already testified, write a letter to Microsoft that says, 'if you were not basically'--in substance--'if you were not the only game in town, we certainly wouldn't deal with you,' but they are the only game in town." Fisher also drew attention to market share data: "The notion that operating systems such as Linux or Beos or OS/2 or even Apple are really going to succeed in taking away much, if any, of the business from Microsoft Windows, is a joke. Of course it's not true." It was reassuring to hear being said what everyone in the industry already knows to be true. Fisher also noted that the substantial price discrimination in OS prices to OEMs "is an indicator of some market power". He continued: "I have looked at what's happened to Microsoft's operating system price over time, and it isn't falling, and I don't believe it's falling even on a quality-corrected basis. And for that matter, it isn't even constant. It's rising, and Microsoft appears to have set its price without regard, not for competition." Boies asked Fisher about the significance of Microsoft's price discrimination. He replied: "if Microsoft is... charging remunerative price to the people to whom it's charging a low price, then, presumably, it is the case that it's charging a more than remunerative price to the people to whom it is charging the high price. That requires a certain amount of power. Microsoft is obviously not particularly worried that the people to whom it charges a high price are going to go off and buy or license some other operating system. "Secondly, I think the price discrimination in pricing to the OEM's is part of a system in which Microsoft does two things. One, it exercises its monopoly power in ways other than simply charging a single high price for its operating system. And second, it rewards various of the OEMs, as it rewards other people as well, for co-operation in a system which tends to reinforce both Microsoft's later revenues and... the barriers to entry into competing with Microsoft and its OS monopoly." Boies raised the applications barrier to competition, but both seemed unaware that any truly Windows-competitive OS would have to be able to use Windows programmes. That in turn would require full disclosure of present and future Windows APIs - something that the court may yet decide to order as a remedy. So far as anti-competitive conduct was concerned, Fisher pointed to Microsoft's conduct not being profit-maximising, but designed to hamper or destroy competition. In addition, Microsoft paid people money or compensation in kind to use IE. Microsoft efforts to thwart cross-platform Java was described as "kill Java with polluted Java, subversion is our best weapon", Fisher said. Furthermore, Microsoft went out of its way to persuade other companies not to be allied with Java or Netscape. When Boies brought up one exhibit, Lacovara objected, saying that Boies had covered the same point the previous Thursday. Boies denied it, but in fact Lacovara was right although it gave Boies the chance to repeat a particularly damaging extract: "Intel to stop helping Sun create Java multimedia API's, especially ones that run well (i.e. native implementations) on Windows." Fisher's telling comment was that "It's got to be in Microsoft's pro-competitive interest to have things run well on Windows. "It's the improvement of a complement. That's got to increase, if anything, increase the demand for Windows. And what goes on here is that Microsoft wishes Intel to explicitly stop that happening." Boies asked if it was necessary to eliminate Netscape entirely as a competitor to preserve Microsoft's monopoly power. Fisher replied that "This is not a case about the destruction of Netscape. This isn't a suit being brought by Netscape. This is a case about the destruction of competition. And in this case, we are talking about a situation in which that destruction of competition takes the form of preventing a threat to Microsoft's operating system monopoly, and the answer to your question is as I indicated: that does not require the complete destruction of Netscape." Fisher produced a better summary of the significance of the Adknowledge data than under cross-examination, and probably removed any lingering doubts in the judge's mind as a result. A telling point was that Microsoft had used exactly the same methodology on another data set. The day ended with a discussion of what Fisher described as a well-recognised phenomenon: "raising rival's costs" which was exactly what Microsoft had been doing with Netscape by effectively foreclosing the two most efficient ways of distributing its browser: through OEMs and ISPs. ® Complete Register trial coverage

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