By Peter Kaplan
WASHINGTON (Reuters) - An economist testifying for Microsoft Corp. in its antitrust case conceded on Wednesday that all the research he's published on the software industry since 1998 has been at least partly funded by the software giant.
University of Chicago economist Kevin Murphy, who began testifying on Tuesday, has said strong sanctions sought by nine states are unwarranted as there is no proof Microsoft's illegal acts actually stopped competitors from succeeding.
States' lawyer Steve Kuney told federal court on Wednesday that Murphy did little work in the antitrust field until he began working for Microsoft as a consultant in 1998.
Murphy did not challenge Kuney.
The nine states have rejected a proposed settlement of the four-year-old case saying stronger measures are necessary to prevent Microsoft from abusing its Windows monopoly in personal computer operating systems.
In a further attempt to cast doubt on Murphy's testimony, Kuney cited one of the Microsoft-funded papers in which he concluded that injecting competition into a monopolized market could lead to higher prices.
The non-settling states are trying to convince U.S. District Judge Colleen Kollar-Kotelly to impose sanctions that include forcing Microsoft to offer a version of Windows with removable features that could be customized by computer makers and rival software companies.
In direct testimony submitted to the judge on Tuesday, Murphy said the states' demands would help Microsoft's competitors rather than consumers.
Murphy supported the settlement Microsoft reached with the Justice Department (news - web sites) in November that includes allowing computer makers to hide certain Windows features and promote rival software on the Windows desktop.
A federal appeals court last year upheld lower court findings that Microsoft used illegal tactics to maintain its Windows monopoly against potential competitors such as the Netscape Navigator Internet browser and Sun Microsystems Inc.'s Java programming language.
COMPETITION, HIGHER PRICES
Kuney noted one academic paper in which Murphy concluded that, under plausible conditions, "entry into an initially monopolized market leads to higher prices for some, possibly all, consumers."
Murphy also said in the paper that monopolies "can lead to better design incentives" than competitive markets.
The economist responded by saying the comments only applied to one particular situation -- one in which the entry of a new competitor prompted a monopolist to cut production.
Kuney also tried to convince the judge that Murphy had fudged the numbers in his economic analysis and wasn't certain about whether the Justice Department settlement would work.
But Murphy insisted that his calculations were sound, and repeated his view that the Justice Department settlement "took the right general approach."
The remedy hearings are expected to run through May at their current pace.
Kollar-Kotelly is also considering whether to endorse the proposed settlement.