Why Microsoft is Not a Monopoly
Figure 2 Illustration of a Monopoly. Retrieved from Economics Help httpwww.economicshelp.orgmicroessaysmarketsmonopoly-diagram.html
In a monopolist market, the monopolist company seeks to attain maximum profits by setting the output where MRMC. This is at output Qm in relation to price Pm. This is contrary to competitive markets where the price is lower and the output higher.
There have emerged concerns over Microsofts position in the technology industry and especially over its dominance in the operating systems market. These concerns are not in regard to Microsofts successes but mainly on allegations that the company may be using its monopolistic nature to create obstacles to the entry of other complimenting actors into the market.
Two major accusations have thus been raised. First, Microsoft is alleged to have inappropriately excluded its competitors in the Internet browser market by leveraging its operating systems monopoly. It is also accused of attempting to disrupt the market for the Java programming language which has potential to significantly weaken the companys dominance in operating systems (p. 2).
The most brutal criticisms of Microsofts status have come from a number of the companys competitors in the market. These are mainly Netscape, Sun, Oracle and Microsystems. Netscape has brought forth the bulk of the accusations. According to Gordon (2002), Netscape claims that Microsoft is seeking to undermine. through illegal means, its position as the lead provider of Internet browsers (p. 2).
Gordon explains that the introduction of the Netscape Navigator was bound to render Microsofts Operating System Windows- irrelevant. The company claims that Microsoft responded by developing and commencing an aggressive promotion campaign of a rival Internet browser, Internet Explorer.
Another accusation came from Sun Microsystems, which challenged Microsoft by bringing Java, a new computer language, into the market. It also proposed the network-computer option that counters Microsofts Personal Computer. Microsoft reacted by coming up with upgrades to both its Intel processors and Windows and introducing the .Net Platform, thus challenging Sun Microsystems.
The concern was that the large number of Windows users would cause software developers to create software based applications on Microsoft Middleware. These, as argued by Elkin- Koren and Salzberger (2004) means that Microsofts products would have increased attractiveness to consumers and thus result in a subsequent increase in the number of users. This would make it very difficult for Sun Microsystems or any other competitor to compete with Microsoft (p. 46)
When analyzing these accusations, questions emerge regarding the economic implications of Microsofts monopoly in the industry. Mankiw (2008) has noted that the fact that Microsoft has in effect weakened andor eliminated its close and strong competitors has given the company the power to influence the market price of its products (p. 311).
McKenzie (2006) has however argued that Microsoft included its Internet browser Internet Explorer at no added cost. This goes against conventional monopoly theory that expects a monopolist company to increase the cost of its products above the cost of the competitive levels. Microsoft did not increase the cost of its operating system and therefore should not be regarded as being a monopoly (p. 53).
It is widely agreed in economic circles that the existence of competition should ultimately benefit the consumers. Cucinotta et al (2002) have noted that while Microsofts predatory control and pricing of its products may encourage a level of inefficient substitution in its competitors products, unsuccessful predation is in general of benefit to consumers. This is because even though there may be harm done to the competitor, the consumer benefits from the lower pricing of products (p. 148).
In addition, McKenzie (2006) has pointed out that despite dominating discourse as a great and destructive monopoly, Microsoft continues to enjoy the support of consumers with the company continuing to reap large profit margins. This is also contrary to what is expected in conventional monopoly theory. It is expected that consumers would lose when a monopolist company (in this case Microsoft) restricts output below the competitive levels and continues to set prices above the competitive levels (p. 54).
It would have been expected that Microsofts consumers would have been hostile to the company and started supporting its accusers. Figure 1 shows that the prices of word processing and spread sheet applications significantly reduced through the period in question. While a monopoly is judged based on the prices it sets against its competitors and by its reducing its output, this graph makes it difficult to consider Microsoft a monopoly. There is no evidence of price increase of its products and may simply mean that that consumers prefer Microsoft products to the rest.
It would also be expected that the actual or expected competitors of a monopolist company would be content with the dominant producers restrictions on sales to increase prices. This is because they would then, based on the lower costs of their products, increase their sales and thus increase their profits. Microsofts rivals were however the strongest supporters for efforts to barring the company from expanding its products.
According to McKenzie (2006), this suggests that Microsoft was acting competitively and not monopolistically in its actions (p. 54). This raises the question of whether Microsofts actions are because of it being a monopoly or is the company simply an aggressive competitor. McKenzie argues that if Microsoft were as strong a monopoly as it is claimed it would not be as aggressive as it is in its anti-competitor endeavors. Monopolies, he argues, generally profit with more ease in less antagonistic environments (p. 60).
Elkin-Koren and Salzberger (2004) have pointed out that standard economic analysis lacks focus on technology and are therefore inappropriate in analyzing Microsofts market position. This is because the company operates in an industry that is not limited to having a dominant power and its relation to output and price but also depends on technology which is dynamic. Therefore, market dominance should not only be measured by the ability of a company like Microsoft to set the market price but also its ability to set the industrys technological standards.
Furthermore, they argue that anti-competitive conduct by a company should not be measured solely in terms of price and quantities but should also take into account the effect that anti-competitive conduct has on the nature of the technologies that become available (p. 47). In conclusion therefore, Microsofts endeavors to maintain its dominance in the operating systems market has without doubt resulted in the introduction of improved technologies that are of benefit the consumers. This makes it look like a monopoly but in a broad sense it is not.