I think the marginal cost arguments are much stronger--
If, by "marginal cost" you mean "price elasticity of demand," I think even they are not as strong as they at first appear. Assuming a low elasticity of demand (i.e., a big increase in price only causes a small reduction in demand, so that revenues increase) equals market power, it says nothing about the source of that market power.
The operating system is merely a component of a total package, the personal computer. People who do not buy PC's certainly do not need PC operating systems. People who buy them do. At the same time, a PC package price that is dropping 1 or 2 percent, or even 5 percent, slower than it might otherwise will not deter many people from buying a PC (though a vendor offering prices 5 percent lower than the rest might win any given deal). A 10 percent price increase might. So the low price elasticity of demand for PC operating systems may simply be a reflection of the fact that, for the ultimate user, PC price increases have not affected demand, even though demand for the total product might be very price-elastic.
what is it about Windows 95 that makes it such a premium operating system (try not to chuckle, Dan) that it costs more?
I agree that Windows is not a "premium product." But try not to chuckle, either, when I raise the possibility that, when you add in support and other costs, just maybe Windows is cheaper than Linux. |
