Sunday, 17 November 2002

Monopoly Rents and Microsoft

Slashdot, everyone's favorite paragon of journalism, is claiming that the 85% profit margin that Microsoft makes on Windows is a "monopoly rent."

I'm not entirely sure I buy that, although my fuzzily-remembered economics isn't helping me figure this out. My recollection is that being a monopoly allows you to shift the supply curve to the right, thus increasing the market-clearing price where S and D intersect. However, calling the difference in price levels a "monopoly rent" assumes that this supply curve shift has actually taken place (obviously we can't determine this empirically). My gut feeling is that it hasn't; Microsoft's OS pricing is comparable to, or lower than, that of other proprietary operating systems (Linux doesn't really count, as R&D costs are lower).