MS/DOJ: MS witness sees no monopoly

Microsoft's first witness will testify in the antitrust trial against the software giant that Microsoft does not have a monopoly, and that consumers have benefited from lower prices and better software as a result of the company's actions.

Richard Schmalensee, dean of the Massachusetts Institute of Technology (MIT) Sloan School of Management, in his written testimony released today, said Microsoft hasn't excluded competition in the operating system market. "It has continued it leadership in this category because it has provided consumers and ISVs (independent software vendors) with a desirable software platform at low prices," he said in his testimony.

Schmalensee's testimony stands in sharp contrast to that of fellow MIT economist and government witness Franklin Fisher, who will return to the witness stand on Tuesday to finish his testimony.

While workers lugged boxes of Schmalensee's 450-pages of testimony and appendixes into the courthouse, Fisher testified in court on Microsoft's Windows operating system pricing. But much of that testimony was conducted behind closed doors.

Fisher's analysis of the Windows pricing data was based on prices paid by OEMs (original equipment manufacturers). Representatives of Dell Computer Corp., and Compaq Computer Corp., along with Microsoft, argued in court today that the pricing information was confidential and should be heard in closed court. Judge Thomas Penfield Jackson agreed.

But in open court, Fisher offered some general conclusions about his research during his redirect by lead government attorney David Boies.

Microsoft "appears to have set its price (for Windows) without regard to competition," Fisher said.

Prices charged for Windows 98 are higher than the price charged for Windows 95, however, the price charged to OEMs for Windows 95 rose to essentially the same price of Windows 98, he noted. If this were a competitive market "you would expect the older product to stay the same or go down" in price, said Fisher.

Microsoft's operating system market share will remain high, predicted Fisher, who called the threat posed by such rival operating systems as Linux and IBM's OS/2 "a joke." Every monopoly has "fringe" competitors, he said.

Microsoft is also charging OEMs different amounts for its operating system, said Fisher. "Microsoft is not particularly worried that people it charges a higher price to are going to buy some other operating system," he added.

With the release of Schmalensee's testimony Microsoft will begin challenging and refuting the evidence and witness testimony presented by the government over the trial's last 11 weeks.

Schmalensee argues that Microsoft doesn't have monopoly power in pricing because it is restrained by competition from its own installed base, piracy, competition from other operating systems, and "most important, the long-run considerations that drive all pricing and innovation in the microcomputer software industry."

The allegation that Microsoft is engaged in anticompetitive conduct hinges on the government's "plainly false claim that the Windows operating system is a choke point for software distribution," Schmalensee testified.

Microsoft did not have the economic power to prevent Netscape from distributing its Web browsing software, said Schmalensee. In court today Fisher said Microsoft hurt Netscape Communications Corp.'s distribution in the two areas that counted the most -- through exclusive agreements with OEMs and Internet service providers.

Schmalensee also testified that the acquisition of Netscape by America Online Inc., could "defeat Microsoft's alleged predatory strategy" if AOL decides to use Netscape Navigator instead of Internet Explorer as its Web browsing software.

In his first swipe at Schmalensee's testimony, Boies, speaking outside court, said much of the testimony was based on published documents, newspaper clippings and press reports "and very little on the actual trial testimony in this case."

Boies also alleged that Schmalensee had relied on a "new way" of economic analysis based on a series of economic papers, "most of which are paid for by Microsoft."

Mark Murray, Microsoft's spokesman, said the government has "been able to push their agenda in this case . . . now it's Microsoft's turn."

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