A monopoly is defined as an entity that comprises of a single seller and many buyers. Since the seller consists of only one firm, the firm can effectively and efficiently influence the price level for its product(s) in the monopoly market. In this case, the buyers are regarded as price takers because they buy the product provided by the monopoly in the market at the price offered by the monopoly. The monopoly can therefore dictate the price level, thereby charging high prices and consequently making supernormal profits. The functionality of a monopoly is based on the one firm or the dominant firm, selling of product(s) which has no close substitutes and the availability of significant barriers to entry in the market (August 156).
Microsoft as a Monopoly
Microsoft Company is a monopoly in the fact that it is a dominant firm in the line of its production. In any given market model, it almost impossible to come across only one producing firm. Markets are mainly composed of several operational firms. In this regard, monopoly concept can only be analyzed through market dominance concept like it is the case with Microsoft. In real sense it is therefore void to consider any given firm a monopoly under the concept of single firm in the market model (August 267). In the determination of what monopoly Microsoft fits in, the three characteristics mentioned above need to be analyzed based on the operations of the company, its product line offering and the market situation under which Microsoft operates. The company is well known for the operating systems that range from windows 2000 and later, especially the Windows XP from home edition, professional to the recently called Windows XP service pack three.
Microsoft has become a monopoly through market dominance in the line of its output produced or rather the products it offers in the market. The process through which this comp-any has managed to do this is critical towards providing an explanation of what kind of a monopoly Microsoft is. This company has dominated the market in the provision of operating systems. It is important to note that operating systems are regarded to be characteristic of network externalities. These externalities can further be direct or indirect, depending on the aspect under which they occur. Increase in the value of a product as more people use the product constitutes the direct network externality. As more people use an operating system, it is termed to be compatible with increase in its usability, considering a common operating system (Tony 248). Windows XP is the known ever operating system that has profound support all over the world, given the ease in its interface and overall user friendliness.
An indirect network externality on the other hand results when more software applications available for a particular operating system increase and consequently increase the value of the operating system. On the same note, the value o specific software increases with increase in the use of the operating system that runs the software applications. Consumers as a result prefer the operating system that runs a diverse range of software application common to the operating system. Such usability aspects are likely to attract a mass of consumers thus pooling them together (Tony 270). An example that fits Microsoft in this case is the MS-DOS that fundamentally reached a greater pool of users thereby making the company to dominate the provision of the Windows operating system that contained the application. Further development of until the recent Windows Seven, has kept the customers’ needs at par with their expectations being met with the development of innovative product features, making computing not only easier but interesting in handling.
Another way through which Microsoft dominated the market is through the marketing failure of the Apple’s company in relation to its operating system, thus making that of Microsoft pick up the market for the operating systems through the IBM computers that were relatively cheaper compared to the Apple computers (Tony 313). IBM computers used Microsoft Windows operating systems, and when they hit the crowd, they consequently made a name for the Microsoft’s operating system. In this case, Microsoft Company is not a monopoly through being the only firm in the market but through dominance in its line of production.
Finally, the other factor that provides Microsoft as a monopoly by dominance is through the argument that Microsoft Windows operating systems are better than any other in the market. Consumer4s around the globe use Windows other than the rest of the operating systems, citing that it is of good quality, readily accessible, user friendly and above all cheap. It is important to note that price of a commodity is a major determinant of the quantity purchased by the buyer. In this case, it does not mean that a single user will buy multiple operating systems but that many users will seek to use it because of its affordability. All the three aspects presented above provide the basis upon which Microsoft became dominant in the operating systems market through fairly competing with the rest of the firms (Tony 326). The company has gone a step further to provide the very latest Windows Eight (8) that is at the moment in at the fore front in sales. Consequently, keeping software applications like the Microsoft Office better for each operating system provided makes sure the customers’ portfolio remain stable over time, hence the monopolistic features and powers.
In the market model that Microsoft operates in, there are multiple firms and therefore Microsoft is a monopoly by market dominance and not by being the only firm in the provision of operating systems since other companies do the same line of product offering. Absence of close substitutes to the Microsoft operating system due to the consumers’ consideration of the product’s superiority confirms dominance monopoly of the company. In addition, scale economies in production and consumption and the copyright laws enforcement restricts other firms from entry into the same line of production. Microsoft therefore becomes a dominating monopoly (Tony 405).
Microsoft Monopoly Cases in U.S and Europe
The Microsoft U.S case was solely based on antitrust laws operational in most states of the U.S. the company was facing an antitrust trial between it, the Federal Government and nine states of the U.S. The concerns in this case were the market position of the company, pricing models and the strategic behavior of the company based on what the antitrust laws stipulated. The facts and conclusions that the case was based resulted to the analysis of whether Microsoft was a monopoly or not. Microsoft had been found guilty of violating the Sherman Act and other state laws that appeared therein in the case. Consequently, it was ruled that the company was limited to practice its monopolistic powers which it had seemingly assumed in its dealings with the states that appeared in the case. However, Microsoft had been charged with neither being an illegal monopoly nor dominating the market but with the abuse of its monopoly power (Hepburn 234).
The Europe case followed complains in the year 1998 with the complaint being the Sun Microsystems. This company alleged that Microsoft had declined to provide necessary information that could allow the company to undertake interoperability with Windows operating systems. This relates to the U.S case in the sense that in both cases, Microsoft deemed to over practice its monopoly powers. Microsoft’s dealings with the Sun Microsystems were perceived to harbor unfair competition among other firms in the same line of production. Following the harmful competition, Microsoft was ordered to provide an operating system without the Windows Media Player which was also characteristic of the case (Moriati 91). The two cases question the monopoly powers Microsoft, but the Europe case went ahead to challenge the copyrights of the company by ordering the provision of an operating system that did not contain Windows Media Player which is unique to the Microsoft Windows. This was meant to suppress the monopolistic powers of Microsoft alongside bringing in the concept of equal market share in the European market that the Sun Microsystems was operating under. This case’s ruling was rather strict for Microsoft in a bid to enhance fair competition among the companies in the subject matter. The ruling was consequently tailored towards failing the Microsoft’s bid to dominate the market, thereby being in full control of its monopolistic powers (Moriati 118).
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