And then there's this one:
Federal Filings Newswires
Copyright (c) 1998, Dow Jones & Company, Inc.
Thursday, November 19, 1998
DOJ Expert:Intel, Java, OEMs Pose Threat To MSFT-2
FORM TYPE: LEGAL
ISSUER: FEDERAL FILINGS BUSINESS NEWS
SYMBOL: X.FFI
Economist Frederick Warren-Boulton, who is testifying as the
government's expert witness in the antitrust case against Microsoft
Corp., noted that Microsoft's monopoly power in the operating systems
market faces three long-term threats: the browser/Java combination, the possibility of OEMs banding together to build a substitute operating system and Intel Corp. (INTC).
Warren-Boulton testified during cross examination by Microsoft lawyer Michael Lacovara that Intel has a special position as a potential entrant into operating systems. Only two major components
make up the computer -- the operating system and the processing chip -- Warren-Boulton said and because Intel currently provides the majority of one of those components, it would have protection from falling prices of the other component if it were supplying both.
He explained that if a competitor enters the operating system
market, prices would plummet because of the fierce competition. This
price fall deters most entrants, but Intel has "uniquely dangerous
potential" because it could simply raise the prices of its chips to
compensate, Warren-Boulton opined.
Regarding the threat posed by original equipment manufacturers (OEMs), Warren-Boulton noted that Compaq Computer Corp. (CPQ) pays Microsoft about $750 million a year for the operating system it places on its computers. With this kind of outlay, Warren-Boulton testified, Compaq and other OEMs have an incentive to join forces and build a substitute operating system.
Warren-Boulton testified that Microsoft viewed these three as
threats, as well, and cited a pricing document authored by Joachim
Kempin, Microsoft's senior vice president of OEM sales.
Lacovara challenged the economist's methodologies because he
used Federal Trade Commission merger guidelines to conduct his analysis even though this is not a merger case. Warren-Boulton responded, however, that the guidelines can be adapted to a monopolization case and that the basic methodologies are the same for analyzing the effects of mergers and monopolies.
Lacovara also attempted to distinguish the software industry
from other industries and argued that guidelines Warren-Boulton used in his analysis were not a good fit because of the rapid pace of technical change. Warren-Boulton disagreed, saying that there is nothing specific to the software industry that would change his analysis.
Lacovara also led Warren-Boulton to a series of questions
regarding the improvements that Microsoft made to each version of its
operating systems in response to consumer demands. For example, when
computers switched from storing information on floppy disks to hard
drives, Microsoft's operating system had to change to support that, as
well. When users shifted to networking their computers, the software
had to support that. Finally, when it became apparent that customers
were buying new computers primarily to gain access to the Internet, the operating system again adapted.
Warren-Boulton agreed with each of these assertions and said
Microsoft responds to user demands and user patterns. He stopped short, however, of endorsing Microsoft's integration of its Internet Explorer Web browser with its operating system and said that providing the "Internet plumbing," but not the full browser, in the operating system makes sense.
As widely reported Microsoft has argued that it integrated its Web browser into its operating system to benefit consumers, an action that the government alleges violates antitrust laws.
Patti Dennis, Esq.
Legal Editor
Now, a couple of things are interesting there.
First, there is the discussion of how Intel, unlike most other potential competitors, could actually give Microsoft a run for its money. It seems to me that that could actually hurt the government's case, since Intel's potential competition would put a lid on Microsoft's ability to raise prices. Ditto for the Compaq/OEM potential OS.
Second, although it is not reported here, it seems to me that, at least as reported in the press, Boulton's definition of predatory conduct may be off. He characterizes Microsoft's conduct as predatory because it does not increase revenues, or words to that effect. However, a lot of conduct that does not increase revenues, such as price-cutting, for example, is not necessarily predatory. Predatory conduct is generally defined, as I understand it, as selling below cost (or raising rivals' costs) for purpose and with the effect of eliminating competition. Now, I'm only reading the press reports, not his actual 111 page report, so he may be using a correct definition which the reporter mis-characterized. But if he is using an overly inclusive definition, it could affect the value of his report. |
