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Monday, July 8, 2013

Essay on Microsoft Corporation Anti-Trust Case

Essay on Microsoft Corporation Anti-Trust Case
Is Microsoft a Monopoly?

When a single company exclusively sells a product for which there are no adequate substitutes a case of monopoly is said to exist (Musgrave and Kacapyr 117).  Monopoly is abhorred in a free market economy since it is thought that the company which has the monopoly may raise its prices to exorbitant levels or may produce a lower quality output.  For this reason, the question of whether Microsoft Corporation is a monopoly is a question that has serious repercussions for all consumers who use its operating system.

Microsoft Corporation is accused of monopoly because of the argument that it engaged in certain activities that are exclusionary and predatory to its competitors which have the effect of restricting or preventing the entrance of new competitors in its industry.  Specifically, it is alleged that Microsoft Corporation entered into different contracts with companies to exclusively use Microsoft’s products and to prevent them from using its competitors’ products. It is believed that Microsoft gave incentive to manufacturers by giving them substantial discounts in return for preloading its operating system on their PCs.  A second argument that Microsoft engaged in predatory and monopolistic activity is when it integrated its Windows operating system with Internet Explorer, which is thought to have prevented the Netscape, a competitor web browser, from competing with Microsoft (Gilbert and Katz 35).  

To allege that a company has engaged in monopolistic activities it is necessary to adduce substantial proof that there was an exclusionary behaviour or predatory behaviour. If Microsoft has a monopoly over the industry it is feared that it will eventually increase its prices to recover the initial losses to prevent the entrance of competitors.  On the contrary, Microsoft’s products are such that would prevent Microsoft from raising its prices haphazardly. In the operating system industry, people do not necessarily have to upgrade their operating systems now and then.  At the same time, its customers will not be encouraged to upgrade its products if it will raise prices of its products.  The more effective business strategy, therefore, is to avoid charging exorbitant fees for its operating systems to encourage its customers to get an upgrade every now and then.

Microsoft also argues that it could not restrict manufacturers of personal computers from doing business with other companies.  Since the computer industry is a very competitive industry it is simply not possible to control all the manufacturers and dictate how they will do business with other companies.  Microsoft believed that if it will even make an attempt to dictate computer manufacturers it may trigger a hostile reaction from them which could motivate them to abandon their support for Microsoft Corporation’s products. It is apparent therefore that the rewarding manufacturers by giving them discounts for supporting their products is a perfectly legal and effective business strategy.  

The bundling of its operating system with the Internet Explorer is also a legal business manoeuvre designed to introduce its lesser-known products to its customers.  In fact, it can even be argued that bundling the Internet Explorer with its operating system allowed the customers to purchase two products for the price of one.  

In conclusion, Microsoft Corporation does not have a monopoly over the computer industry.  It is clear the Microsoft simply utilized effective business skills and acumen to make sure that it stays relevant in the computer industry. 

Cited Works
Gilbert, Richard J. & Michael L. Katz. “An Economist’s Guide to U.S. v. Microsoft.” Journal of Economic Perspectives 15 (2001): 25-44
Musgrave, Frank and Kacapyr, Elia.  Barron’s How to Prepare for the AP Microeconomics/Macroeconomics Advanced Placement Examinations. Hauppauge, New York: Barron’s, 2006.

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