I have followed the testimony in this trial, and I am puzzled by the
discussion (there) of monopolistic pricing. Isn't the main model that
of limit pricing? The monopolist would like to charge where P=MRP, but
only charges the limit price to discourage potential competition. Is
there anything about Windows pricing that suggests that limit pricing is
incorrect?
Peter Dorman
"Eugene P. Coyle" wrote:
>
> The Wall Street Journal frequently denounces "junk science." By that they
> seem to meen expert testimony that supports seeking damages from some
> business.
>
> Richard Schmalensee, an MIT economist is testifying for Microsoft
> in the antitrust trial. The NY Times quoted him Thursday re whether or not
> Microsoft has a monopoly in operating systems. He says they don't. The
> Times said that in his written testimony Schmanesee says "A firm with
> monopoly power over the operating system would charge at least 16 times
> over what Microsoft charges." The Times went on to say that the price of
> Windows would then be $800.
>
> To me, that is junk science. Only somebody who internalized in
> first year economics that firms charge marginal costs, and that monopolists
> set prices where MC = MR could write such nonsense. I guess Schmalensee
> did. But no one who has looked at the real behavior or a firm with market
> power, let alone monopoly power, would ever say anything like Schmalensee
> did. Firms try to develop markets, to grow over time. Every student knows
> that until the professor teaches them that what they know is wrong. Only
> the worst students internalize this garbage and go on to be professors at
> MIT.
>
> Junk science.
>
> Gene Coyle
