Winners, Losers & Microsoft Competition and Antitrust in High Technology Revised Edition Stan J Liebowitz Stephen E Margolis Foreword by Jack Hirshleifer Oakland, California Copyright ©1999, 2001 by The Independent Institute The Independent Institute 100 Swan Way, Oakland, CA 94621-1428 Telephone: 510-632-1366 • Fax 510-568-6040 E-mail: info@independent.org Website: http//www.independent.org All rights reserved No part of this book may be reproduced or transmitted in any form by electronic or mechanical means now known or to be invented, including photocopying, recording, or information storage and retrieval systems, without permission in writing from the publisher, except by a reviewer who may quote brief passages in a review Library of Congress Catalog Number: 99-73414 ISBN: 0-945999-80-1 Published by The Independent Institute, a nonprofit, nonpartisan, scholarly research and educational organization that sponsors comprehensive studies on the political economy of critical social and economic issues Nothing herein should be construed as necessarily reflecting the views of the Institute or as an attempt to aid or hinder the passage of any bill before Congress Table of Contents Foreword by Jack Hirshleifer Preface to the Revised Edition Acknowledgments I The Paradigm Networked World The Fable of the Keys II The Theory Theories of Path Dependence III iv viii x 19 45 46 Network Markets: Pitfalls and Fixes 65 Networks and Standards 85 The Real World 114 Beta, Macintosh, and Other Fabulous Tales 115 Using Software Markets to Test These Theories 133 Major Markets—Spreadsheets and Word Processors 161 Other Software Markets 200 10 The Moral 234 Appendices A Networks, Antitrust Economics, and the Case Against Microsoft 245 B The Trial 275 Bibliography Index About the Authors 313 315 326 Foreword History matters This is an unexceptionable assertion, surely, but one that has also become a slogan in the current economic literature, intended to epitomize a newly discovered flaw in the market system The flaw is this: the merest of historical accidents, perhaps an early engineering choice by a technology pioneer responding to some random influence or ephemeral advantage, locks in future generations to an inefficient technology owing to path dependence Examples of such supposed market failures include the notorious QWERTY keyboard that has bedeviled typists for nearly a century, failure of the Beta videotape format to replace the inferior VHS design, and the strangely persistent quirky English inches, ounces, and quarts in the face of the more rational metric system of measures Analytically, path dependence is blamed on network effects An initial mistaken (or only temporarily correct) choice retains a kind of natural monopoly over a superior one Electric autos might be better than gasoline-driven ones But given that there are almost no recharging stations, a private individual does not find it sensible to buy an electric car Nor can any firm profitably install recharging stations when there are so few electric cars around to use them Everyone is supposedly aware of the inefficiency, yet no single rational decision-maker—having to conform to the actions of everyone else— is in a position to correct it Stan Liebowitz and Stephen Margolis show that inefficient outcomes due to network effects are indeed theoretically possible in a market economy, though only under rather stringent conditions These outcomes are a matter for empirical study How frequently such inefficient lock-ins actually happen? Liebowitz and Margolis’s fascinating historical review of the leading reported instances demonstrates that several of them, notably the QWERTY problem, are essentially mythical while other widely accepted stories represent misinterpretations of the evidence iv Foreword  |  v To begin with, path dependence is inefficient only when an inferior product survives at the expense of a superior one and if the costs of changing over not exceed the value of the postulated quality improvement Omitting this rather obvious qualification represents what Harold Demsetz has called the Nirvana fallacy: comparing a real-world actuality with a hypothetical ideal not within the range of feasible opportunities Network effects constitute a possible source of natural monopoly and lock-in that operates on the demand side (In contrast with the traditional explanation of natural monopoly as due to decreasing average cost, increasing returns on the supply side.) These demand-side increasing returns stem from the advantages of synchronization The value of a good to a consumer may depend not only on the characteristics of the commodity itself but also on how many other users have adopted the same product This is evidently true of literal networks such as the telephone system (there is no point having a phone if there is no one else to call) And to a degree the same logic applies to any product for which person-to-person compatibility and standardization are advantageous Notably, in computer hardware and software there are efficiency gains to be made if people can exchange files with one another or move from machine to machine without worrying about incompatible standards and formats Liebowitz and Margolis explore the range and limits of these network effects Suppose product A is superior to B, in the sense that all consumers prefer the former at each and every possible given ratio of market shares Thus, A would be preferred over B if they each had 10 percent of the market, or if each had 20 percent, and so on Yet such a superior product may indeed fail to displace an inferior one if the incumbent starts with a sufficient initial preponderance (With 90 percent of the market to begin with, B might be preferred by most consumers over a superior newcomer A with only 10 percent.) That is the essence of the market failure due to network effects, and it can happen But Liebowitz and Margolis not stop at this point They go on to ask what rational consumers and rational suppliers, faced with such a situation, would be expected to do—and whether we actually observe such responses Manufacturers of innovative superior products are not powerless; there are ways to enlarge market share For a firm aiming to acquire the critical mass needed to tip consumers’ vi  |  Foreword decisions in its direction, evident possibilities include offering a low introductory price or money-back guarantee And because by hypothesis the new product really is superior, the new entrant might profitably subsidize the cost of the user’s changeover, and even commit to pay the cost of changing back should that be desired All of these devices are observed in real-world markets Furthermore, just as suppliers can often find ways to escape the stasis trap, so can buyers Users can and remain alert to technological progress; in the computer field, Liebowitz and Margolis show, published product reviews in magazines aimed at consumers have had very significant effect on market share Given the likelihood of the superior product eventually winning the battle, foresighted purchasers may well (among other things) demand the same return and exchange privileges from incumbents as from newcomers B thereby attenuating the market advantage of simply having been first in the field In what for many readers will be the most exciting portion of the book, the authors go on to examine histories of alleged market failures, starting with QWERTY Were producers and consumers actually locked into inferior market solutions? And if not, what devices were employed to escape the supposed trap? I will say no more on this topic here, so as not to take the edge off the authors’ accounts of the creativity and ingenuity displayed by both suppliers and consumers in the competitive battle for critical mass Finally, there are important implications for economic theory and public policy High-tech markets, the authors show, challenge some of the old textbook verities, though in ways somewhat different from those emphasized in most recent discussions In a high-tech world, all market participants must anticipate continuing product changes Incumbent suppliers have to decide how often to put improvements on the market, how big a change to make each time (among other things, how to balance between optimality and compatibility), and what to about prices And rational consumers must correspondingly anticipate such supplier decisions, taking into account the likely entry of market contenders with entirely new offerings Turning from decision-making to overall market effects, one implication is that economists need to reconsider notions of competition The authors show that, in tech markets, predominant market share may be the consequence and hallmark of effective competition This often takes the paradoxical form of serial monopoly, as Foreword  |  vii instanced by WordStar giving way to WordPerfect, which in turn lost out to Microsoft Word As for economic policy, a firm’s having dominant market share need not lead to exploitation of consumers by high prices or low-quality products In support of their argument, what better evidence can there be than the history of rapidly improving products and falling prices in high-tech industries, even where single firms have had dominant shares in particular markets? This point has obvious implications for antitrust issues, as elaborated by the authors, with particular attention to the Microsoft story So increasing returns/synchronization effects and consequent tendencies toward market concentration are indeed important in tech markets But equally important and more in need of analytic appreciation are the steps that consumers and firms can take to deal with these effects Dominant market share attracts competitors anxious to offer new and improved products to watchful and alert users The situation may be one of natural monopoly, but no firm can retain such a monopoly position unless it matches or surpasses what hungry outsiders are ready and anxious to provide In an increasingly high-tech world, competition does not take the textbook form of many suppliers offering a single fixed product to passive consumers Instead it becomes a struggle to win, by entrepreneurial innovation and sensitivity to consumer needs, the big prize of dominant market share It is this form of competition that has been mainly responsible for the success of the modern American economy in recent decades Jack Hirshleifer Professor of Economics University of California Los Angeles Preface to the Revised Edition When we were finalizing the proof for the first edition, the Microsoft trial had just begun, but it was already well on its way from a narrow examination of certain business practices to a broad examination of the Microsoft’s role as the provider of the standard platform for desktop computing Not long after publication, the court issued its findings of fact As we prepare revisions for this second edition, not quite a year later, the appeals process has not yet begun The trial brought a surprising amount of attention to the first edition, attention that is in part responsible for the paperback edition We anticipated that chapters 8, 9, and 10 (which deal directly with some of the reasons for Microsoft’s market position) and the appendix (which examines antitrust issues) would be of interest to people who followed the trial We did not suspect, however, that the subject of network effects would play a role in the court’s decision Although the ideas of lock-in, path dependence, and network effects—ideas that we examine critically throughout the book—underpinned the government’s claim on economic justification for its activism in high-technology markets, we thought that the judgment would most likely hang on more-established antitrust doctrines But in fact, the trial and the especially the court’s decision did rest heavily on lock-in explanations of various sorts The court’s findings are peppered with phrases such as “the collective action problem,” “the chicken and egg problem,” and the “applications barrier to entry.” Such phrases indicate that the appellate process may have to decide, among other things, whether it is appropriate to build antitrust doctrines on such unseasoned foundations Although the courtroom activity has moved apace, market activity has moved even faster Technological development has moved away from the desktop and toward communications channels and viii Preface  |  ix other data-handling devices Generation changes—what we refer to as “paradigm changes” in chapter 7—seem to be upon us in several areas, most notably in the rise of the Internet as the possible central focus of computer activity, and the movement away from PCs to personal-information managers, cellular phones, and game machines Additionally, AOL, after its purchase of Netscape, has merged with Time-Warner, removing any David-versus-Goliath component from the browser wars This edition adds another appendix that considers some economic issues the trial raised and a discussion of the court’s remedy Otherwise, it is largely unchanged form the first edition, except for the correction of some typographical and other minor errors 316  |  Index Betamax, 121, 122, 123 Bittingmayer, George, 84n10 Blickensderfer, 34; Hammond keyboard and, 43n42; portable/electric typewriters by, 35 Borland, 164; Ashton‑Tate and, 186; charges by, 173, 174; competition for, 165; macro reader by, 198n1; office suite by, 148, 159n18 Breakup: benefits of, 282-83; costs of, 286-87, 302; Oracle and, 303n1 Bricklin, Dan, 163 Browsers, 217, 220, 226, 252, 260-63, 271n27; freeware, 218; icons for, 263; idiosyncracies of, 222; integration issue, xvi, 274, 280, 282, 295, 299; market shares for, 222 (fig.); reviews of, 151, 219 (fig.), 221 (fig.) Bundling, 249‑52; forced, 307n36; Microsoft and, 253, 254, 255; predatory, 249, 252‑55 Business Week: Foulke in, 27; on Microsoft/antitrust, 246 Buyer’s cartel, 84n6 Byte, on Lotus 1‑2‑3, 164 95 (fig.); costs/benefits for, 158n3; independence of, 1, 300-301; information for, 238; rationali ty of, xii, 53; valuations by, 93‑94, 93 (fig.), 94 (fig.), 106 Contingency, 51 Convertibility, 22 Copyrights, 21, 111, 308n40 Corel, 148, 206, 208, 305nn17, 19; financial problems for, 283; Ventura and, 212 Corel Draw, 209, 231n16; revenues from, 212 Cost-benefit test, 289, 301 Costs: decreasing, 80‑82, 92; design, 8; fixed/variable, 9; increase in, 288, 289; marginal, 78, 84n9; opportunity, 75, 84nn7, 8; output and, 82; production, 8, 91, 92; programming, 81; social, 79; transaction, 298 Court of Appeals for the D.C Circuit, 274, 299 CP/M operating system, 159n11, 163 Critical mass, battle for, xii, xiii Cumulative distribution function, 97; Di’s and, 103, 104 Caligraph typewriter, 12, 36; speed with, 37 Carnegie Commission for Education, Dvorak patent and, 29 Cartrivision, 121 Chicago School, 26, 196 Chicken and egg problem, xv, 276, 278 ChipSoft, 160n30 Cincinnati contest, 24, 25, 35, 36 C language, 132, 178, 179, 304n11 Claris Works, 147 Clark, Jim, 218 Coase, Ronald, 40n6, 271n24; desktop icons and, 260, 261; on external effects, 69; standards and, 21 Collective-action problem, xv, 276, 277 Commodore, 164; GUI and, 129 Commodore Amiga, 149; operating system of, 144 Common property ownership, 73, 75 Communications channels, xv Compatibility, 88, 113n3, 126, 133n7, 134n8; backward, 140, 142, 143, 222, 278; benefits of, 4; optimality and, ix; person-to-person, xii Competition: assumption of, 113n8; fair/ unfettered, 297; increase in, 283, 296; innovation and, 113n4; market share and, xiii; monopolization and, 16; non-desktop market, 296-97; perfect, 63, 64, 241, 242, 244n1; potential, 197; reduction in, 296-97 CompuServe, fees for, 224, 226, 233n35 Computer Associates, 164; SuperCalc and, 165 Computer games, 306n29 Conduct provisions, 298-99 Connections, literal/notional, 68 Consumers, viii, xiv; behavior of, 4, 5, 61, 63, 64, 102, 141‑42, 243; choice for, Dataquest, 306n26; data from, 153, 154, 159n18, 160nn29, 30, 199n26, 200n34; market definitions and, 156 David, Paul, 20, 24, 33, 38, 117; on Cincinnati contest, 36; on Dvorak/QWERTY keyboards, 23, 25; on innovations/optimal solutions, 55; on QWERTY worlds, 50 Dell, 286 Demsetz, Harold, 44n47, 54‑55, 200n33; on efficiency, 40n8; on Nirvana fallacy, viii, xii Desktop icons, 299; placement of, 260, 261, 262, 271n26 Desktop publishing software (DTP), 220, 230n8; high‑end, 206‑9, 212, 214; Macintosh and, 207; market shares for, 208 (fig.), 209, 210, 211 (fig.), 216 (fig.); mid‑range, 213‑14, 216, 214; prices for, 213 (fig.), 214, 217 (fig.); reviews for, 151, 207 (fig.), 211 (fig.), 215 (fig.), 216 (fig.) Desktop rights, theory of, 260‑62 DeskView, 144 DESQ, 144 Developer community, Microsoft and, 146, 257 Developer tools, 282, 306n27 Di’s, 102; distribution of, 103, 103 (fig.), 104, 105 (fig.), 107 Diamond, Jared: on Dvorak keyboard, 14 Digital Research: Apple and, 144; CP/M and, 159n11; DR DOS and, 159n13; GEM and, 144, 208 Diminishing returns, 64, 98; laws of, 82; network effects and, 139; range of, 80; technology and, 81 Discover magazine, on Dvorak keyboard, 14 DisplayWrite, 180, 184 Index  |  317 Disruption costs, 287-88 DoJ See U.S Department of Justice Dominant shares, xiii-xiv Domination: loss of, 227; tipping and, 229 DOS, 3, 5, 141, 306n29, 308n38; Excel and, 167; GUI and, 144, 145, 178, 179; Macintosh vs., 60, 128; movement from, 128, 143‑46, 191, 285; movement to, 127, 129; Windows and, 128‑29, 144, 159n17 Double-marginalization problem, 286, 306n25 Dragon Systems, voice recognition and, 294 DR DOS, Microsoft and, 159n13 DSK See Dvorak Simplified Keyboard DTP See Desktop publishing software DVD, 126, 127, 304n5 Dvorak, August: criticism by, 33, 236; patent by, 22, 24, 29 Dvorak keyboards, 12, 14, 42n23; advantages of, 24, 31; case for, 23‑25, 25‑31, 43n26; converting to, 41n12, 111; experiments on, 27‑29; failure of, 24‑25, 30, 44n47; myth of, 25‑37; and QWERTY keyboard compared, 13, 20, 22, 26-27, 32, 33, 37; superiority of, 26, 27, 37, 41n15 Dvorak Simplified Keyboard (DSK), 29, 40n4; patent for, 24; speed on, 26, 30, 31, 32; superiority of, 31; support for, 30 potential, 60; stable, 59, 60, 98, 105, 108; tipping and, 62; unstable, 59, 62, 176; winner‑take‑all, 99, 104 E Remington & Sons: Sholes patent for, 23 See also Remington Company Ergonomics, 20, 37; evidence from, 31‑34 Established formats See Standards European Commission, AOL-Time Warner merger and, 275 Excel, 140, 180, 191, 199n27, 305n21; competition for, 165; cost of, 200n35; dominance of, 169, 192; DOS and, 167; introduction of, 168; Lotus 1‑2‑3 and, 189; market share for, 175, 177, 195 (fig.), 196; OS/2 version of, 178; price for, 174; review of, 164, 165, 166‑67 (table), 167, 173, 192, 194; and Word compared, 195 Excel for Macintosh, 164, 198n16 Excel for OS/2, 198n16 Excel for Windows, 198n16 Excess inertia, 22, 30, 40n8, 158n4; defined, 21; software markets and, 140 See also Inertia Expedia, 282 Express Publisher, 213, 214 Externalities: example of, 69‑70, 73; internalization of, 70, 241; negative, 69, 102; network effects and, 83; pecuniary, 71‑72, 84n6; positive, 69‑70, 77, 101; sample of, 72, 74‑76 See also Network externalities Earthlink, 298-99 Eastman Kodak case, 300 Economic efficiency, 54, 288 Economic inefficiency, 238; market failure and, 68; occurrence of, 56 Economic models, 60, 64; character of, 49‑50; mathematical models and, 49‑50; proofs in, 50 Economic policymaking, problems in, 242‑43 Economics, ix, xvi, 49, 235, 288; history matters and, 52; path dependence and, 51, 52; technology and, Economies of scale, 84n2, 106, 120, 250, 269n13; network effects and, 139; software and, 82 Efficiency, 299, 301; economic, 288 Emerson, Ralph Waldo: adage of, Empirical connections, importance of, 64 End-User Access, 290 Engineering, changes in, 288 English, metric vs., 129‑30 Entrepreneurs, x, 4, 64; government impediments for, 243 Engineering, changes in, 288 Equilibrium, 75; market share and, 60-61, 65n4; mixed‑format, 99, 114n10; multiple, 63, 64, 176; network effects and, 60‑64; “Fable of the Keys, The” (Journal of Law and Economics), 13 Farrell, Joseph, 38; excess inertia and, 30; standards and, 21; on typewriter keyboard/market failure, 25 Fax machines, 308n39; bundling, 256; network effect and, FCC, SBC-Ameritech merger and, 275 Final Judgment, 290, 294, 295 Findings of fact, 273, 276, 279, 283 First Publisher, 213, 214, 227 Fisher, Franklin, 14, 16, 248, 265; antitrust case and, 245; on monopoly power, 264; on predation, 264; in tie‑ins, 264 Fishery problem, 74 (table); comedy of, 76‑77; positive networks and, 76; tragedy of, 74‑76 FORTRAN, 132; path dependence and, 131 Foulke, Arthur: Dvorak keyboard and, 27, 29 Fragmentation, 292, 293, 302, 307n31 FrameMaker, 206, 209, 212 Frankston, Bob, 163 Free‑rider problem, 109 Freeze proposal, 259 FrontPage, 282, 305n21 Full Impact, 192, 199n27 Full Write, 192 Functionality, adding, 258, 259 Furnace monopolists, analogy about, 249‑50 318  |  Index Game developers/machines, xvi, 306n30 Gates, Bill, 148; Microsoft percentage for, 257; on OS/2, 145; R&D and, 270n18; Windows 3.0 and, 145 GEM graphical operating system, 144, 208 General Services Administration, study by, 29, 30, 237 Genie, charges by, 224 Grant, M C., 37 Graphical operating systems, 128, 144 Graphical user interface (GUI), 127, 133n6, 146; adopting, 129; DOS and, 144, 145, 178, 179 Hammond, Varityper by, 35 Hammond keyboard, 34, 35, 43n42 Harvard Law Review, on QWERTY, 13 HDTV, 126‑27, 131 Hewlett‑Packard, suit against, 159n12 High‑tech markets, ix, xii; government activism in, xv, 303n1; market share/prices in, 269n4; regulating, History, xi; outcomes and, 49, 63 History matters, 51; economics and, 52 Hitachi, 121, 123 IBM, 164, 189, 286, 296; CP/M and, 159n11; DisplayWrite and, 184; Lotus and, 191; Mac vs., 127‑29; OS/2 and, 145, 304n9; Windows 3.0 and, 145 IBM PCs, 163; spreadsheets for, 164; voice recognition and, 294 IBM Selectric type ball, 35 Icon placement, 260, 271n26; anxiety regarding, 261‑62; value of, 262‑63 IDC See International Data Corporation IHVs See Independent hardware vendors Improv: Lotus 1‑2‑3 and, 179; reviews of, 179 Improvements, 301; prohibiting/handicapping, 302 Incompatibility, 121, 141 Increasing returns, x, 64, 80, 268; benefits of, 8‑9, 67; economics of, 7‑9; efficiency traps of, 58; perfect competition and, 242; problems with, 241; social choices and, 236; technology and, 56, 81; theory of, 267 Independent hardware vendors (IHVs), 282 Independent software producers (ISPs), support from, 280 Independent software vendors (ISVs), 276, 282, 284, 288, 292; operating system and, 277 Indexes, 282, 298 Inefficiencies, 69; correcting, 38; development of, 71; economically relevant, 54; inertia and, 40n8; locking in, 11‑14; network‑type interaction and, xi, 72; path dependence and, vii; as profit opportunities, 239 See also Economic inefficiency Inertia, 62, 214, 227, 239, 240; inefficiency and, 40n8; market, 223; testing for, 138 See also Excess inertia Information technology, 9, 282; network effect and, 67 Innovation, x, 152, 299-302; competition and, 113n4; rate of, 15, 255‑56, 257; threats to, 258‑59, 268, 293-96 Instant scalability, 82, 150, 177, 243; market share and, 238; monopoly and, 137; software and, 137, 239 Integration, 299-302; advantage of, 300; new-product, 301; vertical, 304n6 Intel, 286 Intellectual property, 137, 269n10, 281, 295, 296; defining, 308n40; products and, 295 International Data Corporation (IDC), 159n18, 199nn19, 29; data from, 153, 154, 160n31, 199n26, 212; on Novell, 148‑49; on OEM sales, 153; spreadsheet report by, 160n32 Internet, 70, 83, 149, 306n28; networks and, 10, 67; online services on, 223, 224, 226; rise of, xvi Internet Explorer, 218, 222, 248, 251, 265, 272n28, 280, 282, 299, 306n27; America Online and, 271n23; market share for, 220, 223,232n27; Netscape and, 219, 223, 232n28; removing, 260; reviews of, 220 Internet Information Server, 282, 306n27 Internet service providers, 292, 298-99 Internet sharing software, 308n39 Intuit, 145, 160n30, 268, 284; market share for, 204; Microsoft and, 247; Quicken by, 201 ISPs See Independent software producers ISVs See Independent software vendors Jackson, Thomas Penfield, 284-85; appeals process and, 274; on consumer sovereignty, 300-301; criticism of, 279-80; findings of fact by, 273, 276, 279; findings of law by, 300; market definition by, 303-4n4; on Microsoft monopoly, 276-77; rulings by, 274, 275-78, 280-82, 290 Java, 132, 264, 282, 305n19; Netscape and, 279 Javelin, 164 Jazz, 147 Jefferson Parish case, 300, 301 Journal of Economics Perspectives, 13 Journal of Law and Economics, 13 JVC: technological advances by, 122; U‑matic and, 121; VHS and, 121, 124 Kahn, Alfred, 78 Keyboards, 11-14, 87; alternative, 35‑36, 41n15, 236; efficient typing and, 33; ergonomics of, 20; as market failure, 25, Index  |  319 37 See also Dvorak keyboards; Dvorak Simplified Keyboard; Hammond keyboard; QWERTY keyboards Killer-app, quest for, 278 Kinkhead, R., 31 Klein, Joel I., 246 Knowing Interference with Performance (3.c), text of, 297 Kobayashi, Bruce, 132 Kotobuki, VX‑100 by, 121 Language, as flexible standard, 88, 89 LAN WorkPlace, 217 Legacy Engine, 184 Lernout & Hauspie, voice recognition and, 294 Leverage, 249‑52; analogy about, 250; Microsoft and, 150, 175, 251, 252; skepticism about, 249; software and, 135 Licensing, 294-95, 308n40 Linux, 283, 284, 305n17 Lisa, 129, 304n10 Litan, Noll, Nordhous and Scherer, amicus brief by, 276 Lock‑in, 14, 51, 108‑9, 120, 133n3, 136, 150, 151, 214, 223, 237, 266, 267; antitrust theory and, 247, 249; avoiding, 110, 236; Beta‑VHS and, 126; concept of, 139; confirmation of, 138; evidence of, 264; harmful, 16‑17, 227; illustration in, 12‑13; implication of, 47; inevitability of, 58; inferior products and, 15, 132; models of, 56‑58; monopoly and, 223, 249; network effects and, viii; possibility of, 135; rareness of, 239; software industry and, 117, 140; support for, 117; synchronization effect and, 109; third‑degree, 135, 142, 238 Lotus, 189, 284; competition from, 197; decline of, 177, 178, 197; dominance of, 168, 177; IBM and, 191; Microsoft and, 178; office suite by, 159n18; OS/2 and, 179; prices by, 174; Samna and, 184; spreadsheet by, 164, 178, 179; suit by, 158n7, 198n1; Windows and, 145, 146, 148 Lotus 1‑2‑3, 158n7, 198n17, 199n27, 227, 285, 304n11; clones of, 140; competition for, 165, 168; cost of, 173; decline for, 168‑69, 178‑80; DOS versions of, 178; Excel and, 189; Improv and, 179; macro readers for, 198n1; market share for, 175, 177; price of, 177; programs for, 280; Quattro and, 177; review of, 164‑65, 169, 192, 198n15; success for, 147; VisiCalc and, 164 Lotus 1‑2‑3 for Windows, 178 McBride, George, 36 McCarthy, W Marvin, 27 McGurrin, Frank, 38; touch typing and, 24, 33‑34; victory for, 36‑37 Mac Connection, 196 Macintosh, 5, 149, 280, 285; Apple/List and, 304n10; applications for, 150; cost of, 200n35; DOS and, 60, 128; DTP and, 207; GUI of, 128; IBM vs., 127‑29; market share for, 127; as monopoly, 304n4; Netscape and, 280; operating systems by, 129, 134n8, 284; problems for, 278; Windows and, 16, 303-4n4 Macintosh Word, 196; cost of, 200n35 MacUser Magazine: on Microsoft Excel, 192; word processor reviews in, 194 MacWrite, 192; review of, 194, 199n31 Maintenance, 299-302 Managing Your Money, 201, 227; market share for, 202, 204, 205; price of, 201, 203, 204, 230n2; Quicken and, 206, 230n4; revenue for, 230n3; reviews of, 202 Manuscript, 184 Marginal costs, 78, 84n9 Marginal network benefit (MB), 77‑78, 79; AB and, 78 Marginal product, 3, 74, 76 Marginal revenue (MR), 78 Margolis, 141 Market, xiii, xiv, xv; changes in, 288; definition for, 303-4n4 Market failure, 1, 4, 68, 237, 240, 241; as empirical issue, 236; network effects and, xii, 73; paradigm shifts and, 143; QWERTY keyboard as, 20; reasons for, 235; standards and, 21; typewriter keyboard as, 25, 37 Market foreclosure, 250, 251 Market imperfections, 1; network effects and, 83 Market outcomes: monopoly and, 6; private valuations and, 99; winning, 228 Market share, x, xv, 96‑99, 149, 243, 269n4, 285, 286, 304n7; changes in, 61, 63-64, 65n4, 109, 139, 175‑78, 191‑92, 227; competition and, xiii; consumer exploitation and, xiii; dominant, xiv; equilibrium position, 60‑61, 65n4; instant scalability and, 238; measuring, 152‑53; monopoly and, 158n1, 196; network effects and, xii, 176, 264; predicting, 62; prices and, 92, 139; product reviews and, xiii; purchase decisions and, 92‑93; quality and, 227; reviews and, ix; short‑term inducements and, 109; standards and, 93, 107, 108; supply price and, 113n9; synchronization value and, 94; tipping and, 138, 176, 177, 192, 198n14, 202‑3 Market structuralists, 196 Marshall, Alfred, 80 Mass production, economies of, Mastercard/Visa case, 275 Mathematical models, economic models and, 49‑50 Mathematics, path dependence and, 51‑52 Matsushita: AutoVision by, 121, 123; RCA and, 123; Sony and, 122; VHS and, 124, 125 320  |  Index MB See Marginal network benefit M.B.A (spreadsheet), 164 Measurements: metric versus English, 129‑30; standards of, 19 Meca, Managing Your Money by, 201 Metric, switching to, 129‑30 Microsoft: antitrust campaign against, xiv, 4, 14, 218‑19, 228, 245‑48, 254, 267-68, 273, 289; competition for, 197; DTP and, 161nn33, 34; dominance of, 14, 15, 156; economic efficiencies of, 288; economic impact of, 274; exclusionary claims against, 248; future of, 274; GUI of, 128; ISVs and, 276; market foreclosure theory and, 251; market share for, xv, 147, 150, 191, 195, 204, 205, 228; middleware programs by, 292; monopoly and, 15, 156, 196, 228, 264, 265, 276-77; Netscape and, 248, 264; OEMs and, 153, 247, 260, 261, 262, 271n26, 298; office suite by, 146, 147‑48, 189; OS/2 and, 145; ownership of, 256‑57; pricing by, 136, 156, 157 (fig.), 174, 239, 287, 290; R&D for, 270n18; rearrangement of, 273-74, 286; spreadsheet by, 164, 165; standards by, 287; success for, 135‑36, 228; suit against, 159n12; upgrades by, 145; voice-recognition software and, 294, 296; Windows and, 294, 296 Microsoft Management Server, 282, 306n27 Microsoft Money, 201, 206, 251 Microsoft Network (MSN), 226, 247, 268, 287 Microsoft Office, 282, 284, 294, 305n17 Microsoft Publisher: dominance of, 214, 216; market share for, 214, 231n20 Microsoft Word, xiii, 180, 196, 199nn19, 29, 305n21; AmiPro and, 186, 188, 191; dominance of, 182, 186; Earthlink and, 298-99; Excel and, 195; Mac and, 192; market share for, 195 (fig.); review of, 160n26, 186, 194, 199n31; shift to, 191; WordPro and, 142; WordStar/WordPerfect and, ix, 10 Microsoft Word for DOS, 182, 189, 199n32; quality of, 188 Microsoft Word for Macintosh, 186, 196 Microsoft Word for Windows, 180, 182, 186, 191, 196, 199n32; cost of, 191, 199n26, 200n35; review of, 188 Microsoft Works, 147 Middleware products, 280, 282, 298, 304n11, 306n29; defined, 292, 295, 307n32; fragmentation problems and, 292; non-Microsoft, 297; operating system products and, 290; pricing, 308n37; removing, 290, 292, 293; standalone, 307n35; Windows and, 306n28 Middleware provision, described, 289-96 Miller, A., 31 Ministry of International Trade and Industry (MITI), 130‑31 Mistakes: correcting, 38; scientific approaches and, 39 Mitsubishi, 123 Mobile Explorer, 282 Models, 47, 64; advanced, 242‑43; as benchmarks, 242; extending, 102‑11; limitations of, 243; nature of, 90 Money Magazine: on Microsoft/Quicken, 205; on Quicken/Managing Your Money, 230n4; reviews in, 151 Monopolies, 136, 242, 256, 276-77, 304nn4, 9; antitrust policy and, 246; competition and, 16; entrenched, 113n5; extending, 139, 269n13; instant scalability and, 137; lock‑in and, 223, 249; market outcomes and, 6; market share and, 158n1, 196; Microsoft and, 15, 156, 196, 228, 264, 265; network effects and, 15‑16; short‑lived, 16; social harm of, 246; structuralist view of, 196 See also Natural monopoly; Serial monopoly Monopoly pricing, 252, 254, 266, 287; predation and, 253 Monopsony, 84n6 Mosaic Communications, 217, 218, 198n1 MR See Marginal revenue MSN See Microsoft Network MSNBC, 282 MultiMate, 180, 182, 186 Multiplan, 164 Murray, Alan: on antitrust case, 246 Nader, Ralph, 248 National Center for Supercomputing Applications, Mosaic and, 218 Natural monopoly, vii, x, xii, xiv, 8, 99, 113n5, 114n11, 136‑37; network effects and, viii; overcoming, 106; returns to scale and, 91; software markets and, 140 Navigator, 304n12 NBI, Legacy and, 184 NetMeeting, 282, 306n27 Netscape, xvi, 110, 218‑19, 232n23, 252, 258, 270n19, 304-5n12; antitrust case and, 254; attacks on, 280; browser by, 223; bundling, 255; icon placement and, 262; Internet Explorer and, 223; market share for, 219, 223, 232n27, 279; Microsoft and, 248, 264; near‑monopoly by, 268; Windows and, 279-80; Yahoo and, 262 Netscape Navigator, 218, 252, 232n27; bundling, 255; Internet Explorer and, 219, 232n28; market share for, 220; reviews of, 220 Net‑value curves, 102; downward sloping, 98, 113n9; upward sloping, 95, 96, 97‑98, 104, 105, 109, 113n9, 114n10 Network effects, xv, 4, 9, 18n1, 80, 106, 132, 137, 275, 303; benefits from, 71, 83; computer networks and, 67; decreasing returns and, 139; economies of scale and, 139; equilibrium and, 60‑64; externalities and, 68-71, 83; inefficient outcomes and, xi; internalization of, 71; lock‑in and, viii; market failures and, xii, 73; market imperfections Index  |  321 and, 83; market shares and, xii, 176, 264; monopolies and, viii, 15‑16; negative, 98, 232‑33n33; path dependence and, xi; positive, 76‑77; range/limits of, xii; software and, 135, 136-39, 140, 201; standards and, 10, 99; technology and, 9, 10, 67; Windows and, 276 Network externalities, 18n1, 72, 79, 96, 102; market failure and, 68; network effects vs., 68‑71; potential, 73; research on, 246 See also Externalities Network industries: efficient outcomes in, 15; monopolies and, 15, 18n2 Networks, 240; coordination of, 71; establishment of, 10; expanding, 70, 71; exploiting, 83; models of, 47, 77; ownership of, 68, 73, 79; perfect competition and, 242; positive, 67, 76, 79; problems with, 241; standards and, 87; technology and, 83, 241 New Wave, 159n12 New York Times, 14, 36 NeXT computer, 179 Nickells, R F., Jr., 31 Nirvana fallacy, viii, xii Nisus Writer, 192; review of, 194, 199n31 Noorda, Ray, 148 Norman, Donald: on Dvorak keyboard, 32‑33 No-sabotage provision, 298 Notational conventions, 88 No-trade clause, 294, 296 Novell: browser by, 218; office suite by, 148; strategy of, 148‑49; Windows 3.0 and, 145, 146; WordPerfect and, 149 OEMs See Original‑equipment manufacturers Office Depot, 275 Office Machine Section (American Standards Association), 29 Office suites, 282, 283, 284, 294, 305n17; components of, 150; number of, 147 (fig.); sales of, 146, 153, 154 (fig.); shift to, 143, 146‑49 Office Writer, 184 Online services, 226‑27; Internet growth and, 223-24, 226; market shares for, 224 (fig.); reviews of, 151, 225 (fig.) OpCo See Operating-Systems Business Open access, 73 Operating System Product, 292; middleware product and, 290 Operating systems (OS), 127‑29, 274, 277-78, 280, 282, 291; applications and, 285, 286; fragmentation of, 302; new competitors in, 285-86; pricing systems for, 290; reduced innovation in, 29396; strengthening alternative, 283-85; uniformity for, 19 Operating-Systems Business (OpCo): AppCo and, 281, 282, 285, 294-95; lowprice strategy of, 287; market power of, 286; voice-recognition software and, 295-96 Opportunity costs, 75, 84nn7, Oracle, 296; breakup and, 303n1 Original‑equipment manufacturers (OEMs), 160n29, 282; icon placement and, 260, 261, 262, 271n26; Internet Explorer icon and, 260; Microsoft and, 153, 247, 260, 261, 262, 271n26, 298; middleware and, 289, 292; office suite sales by, 153, 154 (fig.); price discounts and, 290; pricing system and, 291; product configurations and, 298-99; software sales by, 153; spreadsheet sales by, 174; support from, 280; Windows and, 298, 307n30 Orr, May, 37 OS/2, 149, 180, 217, 276, 280; development of, 145, 146; spreadsheets and, 178; story of, 278, 304n9 Osborne, Thomas, 36 Outcomes: efficient, 15, 49, 58; history and, 49, 63; market, 6, 99, 228 Output: average costs and, 82; increases in, 92; marginal costs and, 78; production costs and, 91 PageMaker, 206, 209, 227, 231n11; dominance of, 209; market share for, 208, 209; Quark and, 207, 208, 231n11; Ventura and, 209; Windows and, 208 Paperback Software, 198n1 Paradigm changes, xv-xvi PARC See Xerox Palo Alto Research Center Pascal, 132 Patents, 21, 22, 23, 24, 29, 111 Path dependence, xv, 65n1, 90, 124, 132, 248; backward compatibility and, 140; defining, 51‑56; durability and, 53; economics and, 50, 51, 52; example of, 49; first‑degree, 52‑53, 55, 140; FORTRAN and, 131; increasing returns in, 56; inefficient technology and, vii; influence of, 247; mathematics and, 51‑52; models of, 47; network effects and, xi; problems with, xi-xii; second‑degree, 53‑54, 55, 140; social sciences and, 52; theory of, 117, 120, 266; third‑degree, 54‑55, 117, 120, 227 Payoffs, adoptions and, 57, 57 (table) PC Connection, 196 PC‑Excel, 196 PC GEM, failure for, 144 PC Magazine, 160n24; on browsers, 217; on Excel, 167; on Managing Your Money/Quicken, 206; on Microsoft spreadsheet, 165; on Mosaic, 218 PC World, 196; on Lotus 1‑2‑3, 164; spreadsheet review by, 168, 169 (fig.); on WordPerfect, 182 Pecuniary externalities, 71‑72, 84n6; and regular externalities compared, 72 Perfect competition, 242, 244n1; textbook models of, 63, 64, 241 Performance, degrading, 297 Personal Computing: on Lotus 1‑2‑3, 165; spreadsheet reviews in, 163, 169 Personal finance software, 201‑6, 220, 226, 251; market share for, 204 (fig.); 322  |  Index network effects and, 201; prices of, 205 (fig.); reviews for, 151, 202 (fig.), 203 (fig.); as serial monopoly, 202 Philips, home recorder by, 121 Portal revenue, 280 Positive networks, 67, 76, 79, 276-77 Posner, Richard: settlement negotiations and, 273 PostScript printers, 127 Pournelle, Jerry: on Excel, 164 Predation, 252, 264; allegations of, 253‑55; monopoly pricing and, 253; price drops and, 197 See also Bundling; Prices Prices: calculating, 161n35; decrease in, ix, 92, 156, 197; hardware/software, 265; in high‑tech markets, 269n4; increase in, 139, 239; issues surrounding, 286-87, 290-91, 306n26, 308n37; market share and, 92, 113n9, 139; monopoly, 252, 253, 254, 266, 287; predatory, 252, 253; profit‑maximizing, 79; role of, 154, 156, 173‑74; spreadsheet, 172 (fig.); supply, 94, 113n9 Private net‑value function, 100; downward sloping, 114n11; market size and, 101 Prodigy, 227; fees for, 226, 233n35; market share for, 224; problems for, 226; decrease in, 8; output and, 91; standardization and, 92; technology and, 91 Products: configuration of/OEMs and, 298-99; improving, ix, xiii; inferior, vii‑viii, 15, 235; intellectual property and, 295; performance of, 5; review of/ market share and, xiii; superior, 106‑8; winning, 235, 237, 239, 243 Professional Write, 184 Profits, 21; increase in, 256; maximizing, 249 Proofs, 50 Property rights, 73, 239, 299 Provision 3.a.iii, 298, 299 Publish It, 213 Pump‑priming investments, 110 Quality comparisons, 237‑38; making, 151, 152; market share and, 227 Quark, 206, 231n14, 284; market share for, 209; PageMaker and, 207, 208, 231n11; success for, 212; superiority of, 207 QuarkXPress, 206, 208, 231n11 Quarterdeck, DeskView by, 144 Quattro: charges by, 173; introduction of, 168; Lotus 1‑2‑3 and, 177; market share for, 177; price of, 177; review of, 164, 167‑68, 167‑68 (table), 169 Quattro for DOS, 164 Quattro for Windows, 177 Quattro Pro, 148, 180; competition for, 165; price for, 174; review of, 165 Quicken, 160n30, 251; dominance of, 201, 203, 205, 230n4; introduction of, 201; limits of, 201; Managing Your Money and, 206, 230n4; market share for, 202, 205; Microsoft and, 205, 206; price of, 203, 230n2 Quicken for DOS, reviews of, 202 Quicken for Windows: market share for, 204; reviews of, 202 QWERTY keyboards, vii, xi, 3, 14, 40n3, 44n47; converting from, 111; debunking fable about, 237; development of, 12, 16, 20, 42n23; dominance of, 44n44; and Dvorak keyboard compared, 13, 20, 22, 32, 33, 37; inferiority of, xiii, 25, 119, 236; as lock‑in, 236; as market failure, ix, 20; performance of, 26‑29; researching, 13; rivals to, 34, 35, 37; speed on, 26, 30, 31, 32; superiority of, 24; typing competitions and, 24, 32, 36‑37 QWERTY world, 11, 12, 50 Radio Shack TRS‑80, 164 Rational consumers See Consumers Rational Systems, extender technology by, 198n15 RCA: Matsushita and, 123; VHS by, 123, 125 Reback, Gary, 248 Regulation magazine, 13 Remediability, establishing, 54 Remedy: components of, 280-82; defects in, 302-3 Remington Company, 37; Cincinnati contest and, 36 “Remington Still Leads the List” (New York Times), 37 Remington typewriters, 12; advantages for, 38; rivals to, 34, 37; speed with, 37; superiority of, 24 Reorganization, direct costs of, 287-88 Resolve, 192, 199n27 Returns/synchronization effects, xiv Returns to scale, 15; increasing, 7, 91; natural monopoly and, 91 Reviews, 149, 160n25; information from, 151; market share and, ix; technical issues in, 160n23 Ribstein, Larry, 132 Rockefeller, John D., 270n16 Roe, Mark: on QWERTY, 13 Rumelhart, David: on Dvorak keyboard, 32‑33 Sabotage, rules on, 296-97 Saloner, Garth, 38, 248; excess inertia and, 30; standards and, 21; on typewriter keyboard/market failure, 25 Samna, 143, 145, 189; Lotus and, 184 Samna Word, 143, 180, 188 Sanyo: Beta and, 123; V‑Cord by, 121 SBC, Ameritech merger and, 285 Schmalensee, Richard: analysis by, 265, 266 SelectaVision, 123 Separated Business, 281 Index  |  323 Serial monopoly, 16, 136‑37, 267; conventional monopoly vs., 10‑11; environment of, 11; personal finance software market as, 202 Servers: high-end, 296; software, 282, 296Settlement negotiations and, 273-74 Settlement negotiations and, 273-74 Shapiro, Carl, 286; on Corel, 305n17 Sharp, 123 Sherman Act, 279 Sholes, Christopher Latham, 12, 37; patent by, 23; QWERTY keyboard and, 20 Sholes keyboard See QWERTY keyboard Shughart, William: on industrial creativity, 270n17 Signature, 184 Smith, Adam, Smith, L C., 34 Smith‑Corona company, 34 SNA server software, 282 Social benefits, 79, 100 Social choices, 235; increasing returns and, 236 Social net‑value functions, 100; market size and, 101; upward sloping, 114n11 Social systems, persistence of, 240‑41 Software: choosing, 141; costs of, 8, 9, 81, 82; evolution of, 89; innovations in, 152, 258; instant scalability and, 239; nonproprietary, 88‑89; prices of, 287; quality of, 150-52, 238; review of, 15152; specialized components and, 158n2; standardization of, 88, 89 Software industry: antitrust and, 249, 258; increasing returns in, 8‑9; uncertainty for, 288 Software markets: examining, 17, 136; good products in, 237; lock‑in and, 117; network theories and, 136‑39; tipping and, 229; understanding, 139, 149 Software Publishing, 164, 184 Sony, 286; Ampex and, 120; Beta and, 123, 124; Betamax and, 121, 122; Matsushita and, 122; U‑matic and, 121; VHS and, 125 Sound-decompression, 291 Spin-offs, separation and, 288 Sporkin, Stanley: consent decree and, 247 Spreadsheet market, 177; evolution of, 163‑65; review of, 173; tipping of, 176 Spreadsheets, 17, 133n4, 136, 150; Macintosh, 192‑94; market for, 163‑80; market share of, 175‑78, 175 (fig.), 176 (fig.), 194 (fig.); office suites and, 146; path dependence and, 163; prices for, 155 (fig.), 172 (fig.), 174, 174 (fig.); quality of, 165, 167-69, 173; review of, 151, 163-65, 168, 170 (fig.), 171 (fig.), 193 (fig.); unit shipments of, 146 (fig.) Sprint, Worldcom and, 275 SQL Server, 282, 306n27 Standalones, 294, 307n35, 308n39; num- ber of, 147 (fig.) Standard Oil, 270n16 Standards, viii, xii, 71, 240, 293, 306n29; alternative, 87, 89‑90; associated technology and, 40n8; battles over, 90, 119, 120, 125; changing, 17, 20, 21, 22, 110, 111, 130; choosing, 20, 40n8, 87, 89‑90; competing, 16, 23, 39, 87‑88, 90, 125; economics of, 19, 20‑23; establishment of, 9, 10, 24, 87; fixed/flexible, 87‑89; inferior, 21, 22, 39, 111, 302; locking into, 110, 112, 132; maintaining, 243, 301-2; market failure and, 21; market share and, 93, 107, 108; models of, 47, 91-92; networks and, 10, 87, 99; obsolete, 37, 89; owned, 111; perfect competition and, 242; performance between, 22; problems with, 241; production costs and, 92; protections for, 111; superior, 21, 37, 106‑7, 110; synchronization effects and, 99 Staples, 275 Stasis trap, escaping, xiii Streaming Audio, 282 Strong, Earle P., 43n26; on Dvorak keyboard, 42n24; study by, 29‑30 Suites See Office suites Sun, 255, 296 SuperCalc, 164, 165 SuperVHS machines, and VHS compared, 126 Support staff, changes in, 288 Symantec, 284 Symphony, 147 Synchronization, viii, x, xii, 91, 93-94, 95, 113n3; convergence and, 92; internalization of, 99-102, 114n11; lock in, 109; market share and, 94; standards and, 99 Synergies, 288-89, 302 Taub, Louis: hunt‑and‑peck method and, 24 Technology, xiii, 130‑31; adoption of, 57, 57 (table), 62, 117; battles over, 119; changes in, 301; choice of, 301; increasing/decreasing returns and, 56, 81; inferior, 58, 110; licensing, 294-95; market for, 3‑4, 62; networks and, 9, 10, 67, 83, 241; ownership of, 111; production, 82; production costs and, 91; revolution in, 245; superior, 58, 110; working knowledge of, Telephones, value/importance of, 9, 70 Texas Instruments, 286 Thomas, J C., 31 Tie‑ins, 21, 249‑52, 270n15; concerns about, 269n10; metering effect of, 270n14; profits from, 264 Time Warner merger, xvi; AOL and, 275 Tipping, 150, 208, 227, 239, 240; described, 138; dominance of, 229; equilibrium and, 62; evidence of, 264; 324  |  Index market share and, 138, 176, 177, 192, 198n14, 202‑3; software and, 135, 229; spreadsheet market and, 176 Tobias, Andrew, 201 TopView, 144 Toshiba: Ampex and, 120‑21; Beta and, 123; V‑Cord by, 121 Touch typing, 24, 33‑34, 35 Transaction costs, 298 Transaction server software, 282 TurboTax, 160n30 Twin, 140, 164, 165; Lotus suit vs., 158n7 Typewriter manufacturers: competitions for, 24, 34‑37; market advantage and, 35; placement services by, 35 See also Dvorak keyboards; QWERTY keyboards UHF television stations, indoor antennas by, 22 U‑matic system, 121, 122, 123 Underwood, John T.: Wagner and, 34 Union Typewriter Company, 34 U.S Department of Justice (DoJ), 4; antitrust campaign by, 218‑19, 228, 245, 247‑48; Microsoft dominance and, 249, 255, 273, 275 U.S Supreme Court, Microsoft case and, 274, 279-80 Universal keyboards See QWERTY keyboards UNIX, 88, 149; Netscape and, 280 Upgrade, defined, 158n9 Upside magazine, 13 Van Vleck, Va Nee, 132 Varityper, 35 V‑Cord, development of, 121 VCRs, 3, 6; commitment to, 62; competing formats in, 133n3; network effect and, 9; price declines for, 80‑81, 92; success for, Ventura Publisher, 144, 206, 208, 230n8, 231n15; Corel and, 212; dominance of, 209; Macintosh version of, 231n9; market share for, 209, 212; PageMaker and, 209 VHS (Video Home System), vii, xi, 3, 277, 304n5; Beta vs., 6, 10‑11, 16, 55‑56, 60, 70, 92, 120-27,133n3; buying, 49; development of, 121; dominance of, 125; partners for, 125; preferencefor, 124, 125; review of, 124; and SuperVHS compared, 126 Videorecorders: choosing, 6; incompatible models of, 121 VIP Professional, 164 VisiCalc, 163, 164, 233n37 Voice recognition, 292, 293-94, 306n27; development of, 295-96; pricing, 308n37 Voluntary spin-offs, 288 VP Planner, 164, 165 VX, 121, 122 Wagner, Franz Xavier: Underwood and, 34 Wall Street Journal, on antitrust case, 246 Wardley, Mary: on OEMs, 153 Warren‑Boulton, Frederick, 264 Washington, George: metric system and, 129 Western Electric, study at, 31 Williams, Gregg: on Lotus 1‑2‑3, 164 Williamson, Oliver: remediability and, 54 Windows, 145, 280; adding features to, 302; AppCo and, 283, 285; applications for, 284; choosing, 276; competing with, 144, 303-4n4; criticism of, 129; degrading standard for, 291; developing for, 146; dominance of, 143‑44, 180; DOS and, 129, 159n17; freeze proposal for, 259; introduction of, 278; Java an 55; middleware and, 306n28; Netscape and, 279-80; network effects and, 276; price of, 287, 290; program for, 278; restrictions on, 302, 307n31; review of, 188; sales of, 273, 280; shift to, 128, 143‑46, 191; suit against, 159n12; value of, 291 Windows 1.0, 145, 304n7 Windows 2.0, 145, 148, 304n7 Windows 3.0, 145, 148, 180; market share for, 304n7; price declines and, 189 Windows 3.1, 145, 159n16, 306n29 Windows 95, 217, 306n29; development costs for, 81; Microsoft Network icon with, 247; Windows NT compatibility with, 134n8 Windows 98, 253, 291; bundling in, 254; Windows NT compatibility with, 134n8 Windows 2000, 296 Windows CD, 291 Windows CE, 308n41 Windows/DOS, 149; applications for, 150 Windows Magazine, on Money 99, 206 Windows Media Player, 307n33 Windows NT, 217, 296; replacement for, 16; Windows 95/98 compatibility with, 134n8 Windows Operating System, 290; non-Microsoft middleware on, 297 Winner‑take‑all, 99, 104, 136, 137 “Wonderful Typing” (New York Times), 36 Word See Microsoft Word WordPerfect, 142, 148, 186, 192, 227, 285; decline of, xiii, 182, 188, 191, 197; dominance of, 180, 182; market share for, 182; Novell and, 149; office suite by, 159n18, 283; review of, 160n26, 180, 182, 194, 199n31; Windows programs by, Index  |  325 146, 186; Windows suites and, 148; WordStar and, ix, 10 WordPerfect for DOS: problems with, 182; quality of, 188 WordPerfect for Windows, 180, 182; limitations of, 188; Microsoft Word for Windows and, 191 WordPro, 142, 158n9 Word processors, 17, 136, 150; choosing, 235; functionality of, 258; Macintosh, 192‑94; market share for, 182 (fig.), 191, 194 (fig.); prices for, 155 (fig.), 189‑91; quality of, 180, 182, 184, 186, 188‑89; reviews of, 151, 183 (fig.), 184 (fig.), 185 (fig.), 187 (fig.), 189 (fig.) WordStar, 142, 143, 158n9, 182, 233n37; decline of, xiii; dominance of, 180; failure of, 180; Legacy and, 184; review of, 160n26; WordPerfect and, ix, 10 WordStar 2000, 142, 158n9 WordStar Legacy, 184 Workstations, high-end, 296 Worldcom, Sprint and, 275 Wozniak, Steve: on Apple problems, 13‑14 WriteNow, 192 X-box game machine, 308n41 Xerox, 206, 208 Xerox Palo Alto Research Center (PARC), 133n6, 144 XML servers/parsers, 282, 306n27 Xyquest, 184 XyWrite, review of, 160n26 Yahoo, 110, 262, 270n19 Yamada, Hisao: Dvorak keyboard and, 30, 31, 42n24, 43n31; on typewriter inventors, 34 Zeinth, Beta and, 123 Zero economic profit, 113n8 Ziebart, 301 About the Authors Stan J Liebowitz is professor of managerial economics and academic associate dean in the School of Management at the University of Texas at Dallas, and research fellow at The Independent Institute, in Oakland, California He received his Ph.D in economics from UCLA, and he has previously been on the faculty at the University of Rochester, University of Western Ontario, and, as the John Olin Visitor, University of Chicago Dr Liebowitz has written on the topics of copyright and technology, broadcasting regulation, pricing practices, and mortgage discrimination Stephen E Margolis is professor of economics and head of the economics department in the College of Management at North Carolina State University, and a research fellow at The Independent Institute in Oakland, California He has also been on the faculty at the University of Western Ontario and has been a visiting faculty member at the Fuqua School of Business and the University of Michigan Business School Professor Margolis received his Ph.D from UCLA, and his research includes work on housing markets, pricing of medical services, monopolistic competition, and economic efficiency in the law Professors Liebowitz and Margolis have jointly written numerous scholarly articles on the subjects of network effects and lock-in that have appeared in the Journal of Economic Perspectives; Journal of Law, Economics and Organization; Harvard Journal of Law and Technology; Journal of Law and Economics; Research in Law and Economics; New Palgrave Dictionary of Economics and the Law; and Encyclopedia of Law and Economics In addition, their more popular articles have been published in the Christian Science Monitor, Investor’s Business Daily, Orange County Register, Reason, San Francisco Chronicle, Upside, and the Wall Street Journal 326 More praise for Winners, Losers & Microsoft “Liebowitz and Margolis’s WINNERS, LOSERS & MICROSOFT is instructive for all participants—the judge, defendants, plaintiffs and experts in the DOJ vs Microsoft tragicomedy For the rest of us, including Microsoft customers and competitors, it is not too late to learn, as well as be entertained by, the Liebowitz-Margolis explanation and histories of several presumptive ‘monopolies’ of ‘networks’ and ‘entrenched universal users.’” — ARMEN A ALCHIAN, Professor of Economics, UCLA “If only the Justice Department read WINNERS, LOSERS & MICROSOFT, the American economy would be spared much pain and legal expense Stan Liebowitz and Stephen Margolis really know their stuff, and they can write too.” — PAUL A GIGOT, columnist, The Wall Street Journal “Innovative and utterly convincing, their dismantling of commonly accepted myths about the QWERTY typewriter keyboard and the VHS-versus-Beta video struggle makes fascinating and illuminating reading.” — AMERICAN WAY “WINNERS, LOSERS & MICROSOFT features what appears to be the first systematic look at the real-world history of the software industry—and the results are sure to give Department of Justice trial attorneys the heebie-jeebies An invaluable addition to the bookshelf of anyone interested in the Microsoft trial and future high-tech antitrust cases, the book is the best compilation that anyone’s offered.” — WIRED “WINNERS, LOSERS & MICROSOFT collects in a single volume the impressive scholarly work of Stan Liebowitz and Stephen Margolis on network effects and path dependence This book is extremely important and useful.” — BRUCE H KOBAYASHI, Professor of Law, George Mason University “In WINNERS, LOSERS & MICROSOFT, Liebowitz and Margolis take aim at the common understanding of network effects—in particular, the belief that vast user bases and compatibility can allow inferior technologies to drive superior ones out of the marketplace Their arguments, such as their history of software applications, will be of interest to executives in virtually any field.” — UPSIDE “Liebowitz and Margolis’s WINNERS, LOSERS & MICROSOFT is an all-out attack on the intellectual and empirical basis for ‘path dependence,’ with particular application to Microsoft’s role in the software market The book serves a useful purpose in throwing cold water on the idea that markets routinely pick inferior technologies and in providing the first thorough summary of what really happens in software markets.” — REASON “WINNERS, LOSERS & MICROSOFT gives ‘path dependence’ a cold show-er and sheds much-needed empirical light The book is also a pleasure to read because it serve up course after course of exquisite historical and institutional detail.” — GEORGE BITTLINGMAYER, Prof of Econ, Univ of Kansas “In WINNERS, LOSERS & MICROSOFT, economists Liebowitz and Mar-golis present powerful evidence that Microsoft lowered prices.” — NEWSWEEK “In WINNERS, LOSERS & MICROSOFT, Liebowitz and Margolis argue that path dependence is something of a myth, or at least far less important than Microsoft-bashers make out Ironic, isn’t it, how often anti-monopoly actions to correct alleged market failures end up hurting the little guy?” — FINANCIAL TIMES “Economists Liebowitz and Margolis find no convincing examples that network effects are at all important in establishing and maintaining monopoly of inferior products This excellent volume is recommended for academic and professional collections.” — CHOICE “Respected economists Stan Liebowitz and Stephen Margolis use plenty of statis-tics to examine the key tenets surrounding the Microsoft antitrust trial Their research makes a compelling case and argues that their voluminous research proves that consumers don’t get ‘locked in’ to inferior standards, la the popular economic theory of ‘network effects.’” — INDUSTRY STANDARD “Powerful stuff, WINNERS, LOSERS & MICROSOFT will have an important impact on the debate about antitrust in high technology It exhibits a very high calibre of scholarship and bases its conclusions on a wealth of new empirical evidence.” — WILLIAM SHUGHART II, Professor of Economics, U of Mississippi “WINNERS, LOSERS & MICROSOFT is a timely book on competition and antitrust issues in high-technology industries It is highly recommended for managers interested in a better understanding of the impact of network effects, technology lockin, and path dependence.” — JOURNAL OF PRODUCT INNOVATION AND MANAGEMENT “In their book, WINNERS, LOSERS & MICROSOFT, economists Liebowitz and Margolis argue that not only did Microsoft’s products earn superior reviews, their entry into the market sent prices plunging This is what the Justice Department is protecting the world from? Better products and lower prices?” — WASHINGTON TIMES ... restructure and deregulate many of the utility industries, separating the increasing-returns parts of 8  |  Winners, Losers & Microsoft those industries from the rest But even as deregulation in these industries... to get involved in regulating modern high- technology industries, basing their argument on the claim that high- tech industries are particularly prone to increasing returns The software industry,.. .Winners, Losers & Microsoft Competition and Antitrust in High Technology Revised Edition Stan J Liebowitz Stephen E Margolis Foreword by Jack Hirshleifer Oakland, California Copyright