If Microsoft were a true monopolist, it would be charging significantly more than the $50 or so it charges PC makers for Windows -- anywhere from $500 to $2,000 a copy. That's been a key argument relentlessly pursued by the company's economics expert witness, Richard L. Schmalensee of the Massachusetts Institute of Technology. What forces Microsoft to keeps its price down, he argues, is the risk of competition.

But on Jan. 21, Schmalensee's last day on the stand under cross-examination, U.S. District Judge Thomas Penfield Jackson questioned the economist's reasoning: "Why assume that a monopolist always maximizes a price? It seems to me that you can think of reasons why a monopolist wouldn't maximize a price in quest of a larger glory at some later time."

Schmalensee acknowledged that "most firms think of the consequences of today's prices" on tomorrow's demand. But he added that the difference between the $50 Microsoft charges and the much higher price that a monopolist could charge for the operating system is predominantly the result of "dynamic competition" -- the constant "threat of entry" in the fast-paced software market.

Jackson persisted. "I'm thinking of a model of a cigarette company which is a monopolist. We can see why a cigarette company would want to price at the low end even though it was the only source."

Schmalensee agreed that "today's price will affect the stream of demand noticeably. What differentiates [the operating system] from the cigarette industry is that there is no evidence of that kind of addiction."

The judge asked, smiling. "Do you have kids?" Schmalensee replied, "I have kids. Not all kids use Windows. Some kids use Macintosh. Mine use Windows."

"RED HERRING." In a trial where the judge only rarely questions the witnesses, those moments provide a glimpse into his thinking. Later in the day, Jackson again interjected, raising questions about a key Microsoft defense. At issue was the use of monopoly power to affect the distribution of products. The government charges that Microsoft used its monopoly power in operating systems to bully computer makers and other customers into favoring its Internet Explorer browser over Netscape Communications' rival browser, Navigator. Microsoft argued that it does not have monopoly power and that as long as Netscape could still get its product out, there was no antitrust violation.

Schmalensee had testified that the issue of monopoly power was a "red herring." Jackson asked whether he was saying that "the ability to affect distribution is no indicia of monopoly power?" Schmalensee said in this case, Netscape was not foreclosed from channels of distribution, so Microsoft's practices did not indicate monopoly power.

Schmalensee offered an example of a company that not only paved all the supermarkets' parking lots but also sold toothpaste. What if the paving company refused to pave the supermarket's parking lots unless the stores sold its toothpaste?

The judge responded: "By the use of the operating system and its alleged monopoly and its refusal to extend the operating system to potential distributors except on unfavorable terms, [Microsoft] has done exactly what you said with your paving monopoly."

DOES IT HURT? Schmalensee said the paving company "did not prevent the supermarkets from distributing other toothpaste" or hurt the ability of other sellers of toothpaste from selling elsewhere. He said: "You need to say, does the requirement that my toothpaste be on the shelf disadvantage other vendors of toothpaste" -- and if it does, does it hurt other channels of distribution?

But the judge was skeptical: "You could make the argument that there are other channels of distribution, such as pharmacies and convenience stores. But the fact is that your competitors are not being distributed except on very unfavorable terms."

Schmalensee said the judge needs to forget about the alleged monopoly power of the paving company -- or the operating-system maker -- and focus on whether toothpaste competitors -- or the browser competitor -- had other ways to get the product out. The economist testified later that the number of Netscape users has grown, and that all channels of browser distribution are open -- evidence that Justice disputes.

The trial will resume Monday after when Microsoft Vice-President Paul Maritz takes the stand.

By Susan Garland in Washington