Case Study Economics- Microsoft and Monopoly

According to the Department of Justice, Microsoft used its resources and technology to drive other companies out of business, thereby eliminating the competition and creating a monopoly. Without competition, Microsoft was able to set prices and consumer conditions in a way that exceedingly benefited the company while ensuring a decreased amount of new competition because of the proprietary software installed in most PCs. (Competitive Processes, Anticompetitive Practices and Consumer Harm in the Software

Microsoft has developed into an inescapable force within the technological field. Coming from a delayed humble beginning, it has had to devote large sums of money to approach the levels of the founding technological companies. Today, Microsoft controls the market in computer software. How they have achieved this status is what some have come to question. Through “bundling” software programs, manipulating other computer companies, and packaging deals with personal computers, Microsoft has managed to eradicate nearly all competitors in the computer software market (Love, 1997). This near monopoly affects the entire spectrum of classes, including the consumer, other networking providers,

They have expand their business from only on computer software and hardware to online search engine, home gaming devices and smartphone, those business are the popular business in the world, Microsoft is trying to adapt the new market.

United States vs. Microsoft is one the largest, most controversial antitrust lawsuits in American history. Many claim the government is wrongly punishing Microsoft for being innovative and successful, arguing that Windows dominates the market because of the product’s popularity, not because of malpractice by the parent company. Others argue in favor of the government, claiming that Microsoft’s practices conflict with the free market ideal. There are many arguments for both sides of the lawsuit, but what the case really comes down to is this: does the government have the right to interfere in today’s marketplace? Or is Microsoft violating laws that are rightfully imposed by the government?

The war between Microsoft and the Department of Justice actually began with the rollout of Windows 95. In an attempt to gain a greater market share of the Internet browser arena, Microsoft began packaging Internet Explorer as part of their Windows operating system. Microsoft required their original equipment manufacturing (OEM) companies to install Microsoft Internet Explorer and Microsoft Networking software on every personal computer they sold along with icons for each application prominently displayed on the user's desktop.

Microsoft’s approach of creating competition also increases both the variety and the availability of their PCs. PCs can be found almost anywhere that sells other electronics. Each PC manufacturer produces their own configurations. Each retailer sells at least a few exclusive PCs. The end result is many different PC options for the consumer.

The government, for example, contends that some of Microsoft's business agreements with Internet service providers and Internet content providers, which restrict their ability to promote non-Microsoft browsers, violate Section 1 of the Sherman Act. The government also alleges that Microsoft has violated Section 2 by engaging in anti-competitive actions to preserve its Windows monopoly and to extend that monopoly into the browser market (2).

In more recent years, the Microsoft Corporation has repeatedly been accused of having a monopoly on the software market (Rise of monopolies 1996). Microsoft

First, Microsoft ‘encouraged’ Compaq, Apple, and other computer manufacturers to promote only Internet Explorer, and to make that the default browser on their PC. This encouragement came in the way of threats to eliminate or delay licensing of operating systems, providing the browser for free to internet access providers, and bundling the software with the operating system under the guise of interactive ease for the consumer. This manipulation led to an increase in the browser’s sales by 45 to 50%, which paralleled the decline Netscape experienced in their market sales in 1998.6

In return, these companies must give preferential treatment in promotion and the like to Microsoft. One example is AOL's new 4.0 browser is specially designed to work best with the Microsoft Internet Explorer 4.0 browser. Much of the increase in AOL's clientele base can be attributed to the combined efforts of Microsoft and AOL. Microsoft is not only working with ISP's, but also with companies that build and maintain web pages and servers.

“Microsoft’s share of the market for Intel-compatible PC operating systems is extremely large and stable,” 2. “Microsoft’s dominant market share is protected by a high barrier of entry,” 3. “Microsoft’s

had to buy, Microsoft also would sing contracts with the vendors for long periods of time

Microsoft has been fighting competitors in the Operating System fields as well as the Search field for many years. After Apple launched its new Macintosh computer, Microsoft came out with its first production of Windows which had a graphic user interface. Microsoft had 95% of all OS on individual PC’s in the 2000’s where apple only had about 2%-3% (Rivkin 2). A new venture that Microsoft was working toward was application software where the produced Microsoft Word and Excel. At first these two applications where not very popular on PC computers because WordPerfect and Lotus 1-2-3 where the main applications being run. Microsoft’s solution to this competition was

Microsoft operates in many geographic locations around the world and are behind the world’s most popular desktop operating system in the world. Microsoft is primarily a software company but have flexed their arms into internet services and are behind certain products in consumer market which is directly against Google. Microsoft’s market includes end-customers, enterprises and institutions just like Google. Some of the key Microsoft products are Bing which is a search engine just like Google.com and Microsoft ad center which is a direct

Considering that every computer manufactured in the United States and the world has to have an operating system in order to work Microsoft appears to be dominant in this arena. The company has been so dominant over the years that back in 1998 in a complaint filed against Microsoft in the U.S. District Court of the District of Columbia on May 18, 1998, the Justice Department declares unequivocally that "Microsoft possesses (and for several years has possessed) monopoly power in the market for personal computer operating systems" (U.S. v. Microsoft Corporation 1998).