Judge Closes Courtroom for Testimony on Windows Pricing

The judge in the Microsoft Corp. antitrust trial closed the courtroom Monday to hear one of the computer industry’s most closely guarded secrets: the prices the company charges different computer makers for its Windows operating system.

The government contends Microsoft uses variations in pricing to punish its enemies and reward its allies. The government says the fact that Microsoft charges different prices to different companies helps prove that Microsoft wields monopoly power.

But in testimony released Monday, Microsoft’s first witness told the judge that the company does not possess monopoly power. Richard Schmalensee, who served on former President George Bush’s Council of Economic Advisors, testified that Microsoft faces competition in the high-technology industry from rivals, software pirates and customers reluctant to upgrade to new versions. He also argued that, according to federal antitrust principles, Microsoft sets prices too low and improves its products too frequently to be described as a monopolist. “No one . . . could possibly conclude that Microsoft enjoys the quiet life of a monopolist,” said Schmalensee, who has worked with the company since 1992.

The issue of monopoly power is critical for the government, which alleges that Microsoft illegally bundled its Internet browser software into newer versions of Windows to “crush” Netscape Communications Corp., whose own browser was a direct competitor.

Government lawyers say Microsoft was motivated by the fear that Internet software eventually might assume many of the roles that Windows performs as the central nervous system of computers.

The most sensitive parts of Schmalensee’s testimony were excised for the public, such as the actual price for Windows that Microsoft charges to computer makers. But the economist wrote that a monopolist would charge them prices “at least 16 times” higher than Microsoft’s current fees.