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MS breakup could cost world $310bn – crazed new study

Windows to cost more than petrol, wolves howl on Highway 101..

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The estimated cost of breaking up Microsoft has reached a new high - consumer worldwide could wind up paying anything up to $310 billion more, according to a new study produced by Professor Stan Liebowitz under the banner of pro-Microsoft and Microsoft-backed lobby group the Association for Competitive Technology.

Liebowitz already has a track record of predicting doom for the US economy if Microsoft takes the fall, but the latest (thanks to Kevin Reichard of Linux Today for drawing out attention to it) is more impressive than ever. He estimates that over a three year period price rises in Microsoft software caused by a breakup could cost US consumer $50-125 billion, the higher figure being achieved "if the two new companies completely turn their back on the prior pricing strategy of Microsoft," while the worldwide figure will be at least $125 billion, but up to a maximum of $310 billion.

The good prof's reasoning appears to be based on a quantity of high-altitude thinking that was produced during the trial. For Microsoft, Richard Schmalensee you'll recall came up with a "profit-maximising" price for Windows of $900-$2000. Liebowitz doesn't altogether back Schmalensee here, rather hurtfully commenting that "economists less friendly to Microsoft" have come up with the profit-maximising number of $813. This is based on the price of a PC being $1000, while Schmalensee went for $2000.

Liebowitz spoils it by plumping for $1700 as the worldwide price. But enough of this guff. The profit-maximising reasoning basically boils down to this: if Microsoft puts up the price of Windows, then clearly the total cost of a PC will go up to reflect this, and therefore PC sales will fall. Depending on how much extra profit Microsoft makes because it puts the price up, this isn't necessarily bad news for the company, because less sales can still equal more money.

So Liebowitz reasons that Microsoft's profit would carry on going up until the price increased something like sixfold. Frankly, it's angels and pinheads stuff that only relates to the real world in the most tenuous of fashions. What would you do if Windows cost $300? What, more importantly, would Dell do? To what extent would the cost of Linux figure in this? And do we seriously believe that Microsoft charges OEMs something in the vicinity of $50 for Windows because it's a nice company?

Linux Today, as you might expect, doesn't think much of the study either, and you can read about that here. If you'd like a look at the whole of Liebowitz's heroic effort, you can get that here. ®

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