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MS pushes prices down, not up, claims study

CFA study which claimed Microsoft owed customers $10 billion was deeply flawed, new book alleges

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A report published last year by the Consumer Federation of America (CFA) which said Microsoft's domination of the applications market had pushed software prices up got it completely wrong, the authors of a second study have claimed. Economists Stephen Margolis and Stan Liebowitz from North Carolina State University and the University of Texas, respectively, charted Microsoft pricing policy for their forthcoming book Winners, Losers and Microsoft: How Technology Markets Choose Products. The result: "Unbiased and careful studies discover that Microsoft lowers prices even when it achieves very large market shares, quite the opposite of the nonsense now being promulgated by the CFA and the Department of Justice," according to Liebowitz. As evidence, the authors cite the battle between Microsoft Word and WordPerfect. Between 1986 and 1992, US prices fell from $168 to $130. At that point WordPerfect's market share collapsed and it ceased to be a major competitor, prices subsequently fell even further, reaching just $46 by 1997. Margolis and Liebowitz claim that in ten software categories in which Microsoft competes, prices fell on average 65 per cent between 1988 and 1995. In five categories that Microsoft doesn't offer software, prices fell just 15 per cent. That may be true, but it has to be remembered that the fall in prices has come more by bundling applications together than because the prices of individual packages have been cut. Word may have effectively costed $46 in 1997, but you'd have had a job buying it as a standalone package at that price. The authors also point out that OS prices have fallen, with a DOS/Windows combo falling from $205 to $163 between April and December 1990. Last April, Windows 95 cost $185 and $98 for an upgrade pack; by the end of the year, Windows 98 was $169 and the upgrade $85. Still, the authors are keen not to be seen judging price cuts like these as a positive move on Microsoft's part -- they're simply saying that prices have come down, and it's wrong to claim otherwise, as the "poorly researched" CFA study claimed to show. Said Liebowitz: "[CFA researchers] base their conclusions on four referenced studies, one of which is a single paragraph in Business Week that discusses a study of industry-wide prices over a two-year period, surely too short a time span to draw any conclusions." ® Complete Register trial coverage

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