The Cost of Microsoft's Monopoly Pricing

An analysis conducted in 1998
Microsoft has claimed in various articles that the Windows 95 operating system is competitively priced. Since I would expect that the Microsoft monopoly would artificially sustain higher prices for the OS, I did a little bit of research to determine what the truth is.
I do not know how to determine the "proper" price for an OS, but I figured that the price of a product in a competitive market should vary about the same as similar products. Accordingly, I compared the inflation rate of top-selling PC software in 1996 to 1998 and compared it with the inflation rate for Windows 95.
Not surprisingly, the average price that consumers paid for software applications other than Windows 95 declined some 13% during these two years. The average Windows 95 price, however, increased some 5%A.

Application

Cost in first half of 1996

Cost in April of 1998
Percentage decrease in cost





Norton Antivirus

73

46

37%

Norton Utilities

731

65

11%

Quicken

34

31

9%

Quicken Deluxe

58

56

3%

TaxCut

22

17

23%

TurboTax

32

30

6%

TurboTax Deluxe

44

45

-2%

VirusScan

48

39

19%





Average decrease

13%







Microsoft Windows Upgrade

872

91

-5%



This is particularly ironic considering Bill Gate's boast that the cost of computing has "fallen by a factor of 10m since the microprocessor was invented in the early 1970s."B Apparently he has not been doing his share.
What is even more damning is that Intuit, McAfee and Symantec have "steadily improved with new features and functions"C their software packages. However the retail version of Windows 95 has remained essentially unchanged since its introduction: consumers are paying more for the same, contrary to the usual economics of computers.

The above numbers can also give us some idea of the cost of the Microsoft monopoly to the American consumer. If 3 million consumers upgrade to Windows 95/98 this year, Microsoft pulls an extra $45.9 million dollars out of the computer economy. If 26 million Americans buy PCs with Windows pre-installed, Microsoft reaps some $165.6 million in monopoly profits (assuming the OEM price has stayed constant at $49 per license) from PC manufacturers. With Microsoft's OS monopoly alone costing the U.S. economy over $200 million this year, it is easy to see why the Department of Justice's suit could benefit many more people than just Netscape.


A Prices from PCData.com lists of business and personal productivity software in the First Half of 1996 compared to April 1998.
B The Economist,May 30, 1998
C Ibid

1 This value for Norton Utilities was taken from the list for April of 1996 rather than the First Half of 1996 list.
2 PCData gives prices of $86 and $88 depending on which list you use. I simply took the average.


© Drew McCormick 1998