Microsoft Monopoly Power
Most people have criticized Microsoft as the company is said to be a monopoly. Microsoft is a monopoly as it occupies a large market share. The firm occupies 90% of the market share. People have criticized the firm because of its pricing behavior and reactions towards other firm. The firm sets higher prices for its new products, and old products. It also forces other firms in the market place to comply with its rules. The relationship between Microsoft and other firms like Intel and Netscape are not good. The relationship shows how Microsoft protects its monopoly power. This paper shows how Microsoft is a monopoly using its pricing behavior and reaction towards other firms.
A monopoly is said to exist when a specific firm or person has control over a particular product, and services. The firm determines the terms on which other people will be able to access the products, and services. Monopolies are mainly characterized by lack of economic competition. Firms become monopolistic when they do not face competition from other firms. They also lack substitute goods as competitors are not allowed to produce similar products. The firm gains a greater marker share than what is expected under a perfect competition. Many people have criticized Microsoft as the firm is said to be a monopoly. This is because Microsoft has a large market share compared to other firms in the market place. Though, Microsoft offers technology products like windows operating systems, other smaller firms have emerged to compete with the firm. For example, Macintosh and Linux have emerged to provide similar products.
Macintosh is a small firm that offers computers and operating systems. Another firm is Linux and it offers alternative windows to Microsoft windows. Microsoft occupies a market share of 90% while other firms occupy only 10%. A monopoly sets high prices on its goods and services as it has no serious competitors to force it to lower the prices. A monopolistic firm also limits the supply of goods and services. This causes scarcity of the products causes prices to rise. The company collects rent on its domination of the particular sector of the economy. The company collects a lot of rent than it could not collect if there were other competitors in the market place. A monopoly exists legally when the firm forces other competitors out of business by cutting prices, and buying up supplies and hoarding them. It also uses bribery and intimidation to acquire a market share.
Microsoft monopoly power
Many people have criticized Microsoft as the firm has engaged in many practices on the basis of its monopoly in the market place (Koontz, Weihrich, 2006). Since Microsoft is the largest company offering operating systems and computers, it has taken the advantage. A federal judge has ruled that Microsoft has engaged in many practices that are harmful to other competitors. The judge also terms Microsoft to be a monopoly. Most people argue that Microsoft should be divided into other small firms so as to make it compete on the same level with other software firms. This will ensure competition in the market place. Thus, reducing the prices and improving the quality of the product. Microsoft is considered to be monopolistic as it has a commanding share in the market place (Koontz, Weihrich, 2006). The firm acts as a threat to other firms offering software products in the market place. Federal judges have declared Microsoft a monopolistic firm in a recent anti trusts. Most people have questioned the pricing behavior of Microsoft, and Microsoft actions towards other firms. Microsoft pricing behavior shows that the firm enjoys a monopoly power in the market place.
The company has set high prices for its Intel compatible PC operating systems. More over, the company does not consider the prices of other vendors who offer Intel compatible operating systems while setting prices for its windows 98. This shows that Microsoft is a monopoly in the market place, and it does not consider other firms present in the market place. If Microsoft was not a monopoly in the market share it would consider prices charged by other firms in the market place (Eisenach, Lenard, Progreess & freedom foundation (U.S), 1999). Another indication that Microsoft is monopoly is that Microsoft has raised the prices it charged OEMS for Windows 95.The firm has raised the prices to the same level as the prices the firm charged for windows 98 before releasing the newer product. In a competitive environment, the prices for older product decrease when a newer product is released or stays the same (Sexton, 2001). For example, in a competitive environment the prices for older operating systems stay the same or drop when a newer operating system is released. However, Microsoft did not lower its prices for the older operating system, but it increased it to the same level with the newer product. Microsoft was only concerned with inducing OEMS to ship windows 98 in favor of the older version.
Thus, Microsoft is a monopolistic firm (Eisenach, Lenard, Progreess & freedom foundation (U.S), 1999).Another reason why Microsoft pricing behavior reveals the firm is a monopoly is the setting of prices. The firm had tact in setting the prices for windows 98 upgrade product. A Microsoft study carried out on November 1997 shows that the firm charged $49 for upgrade to windows 98. The price the firm charged was profitable. The study shows that the revenue maximizing profit for the company was $89.The firm opted for the higher price during this period so as to maximize profits in the market place. Microsoft also charges different prices for its OEMs (Eisenach, Lenard, Progreess & freedom foundation (U.S), 1999). The prices charged by the company depend on the degree to which the OEM is willing to comply with Microsoft requests. The company charges higher prices for its products because there are no strong competitors in the market place, and the firm has higher market share than other firms. The firm also wants to maximize profits from the market share.
This indicates that Microsoft is a monopoly as it charges higher prices for its product so as to maximize profits. This is a characteristic of a monopoly firm which has a large share than other firms in the market place. The firm wants to stimulate the growth for its share by maximizing the profits. The firm pricing behavior has effects on its consumers. This is because the firm wants to maximize profits, and spend most of its monopoly power maximizing prices, and imposing burdensome restrictions to its consumers. This will make it easy for the company to force the consumers behave in ways that will help the firm prolong its monopoly power. The company wants to have a large share in the market place. For example, the firm has imposed conditions to windows license that restrict OEMS from promoting software’s that would weaken the application barrier to entry.
The company also charges lower prices for OEMS that agree their machines to run Windows NT for workstations. This forces OEMs to concentrate on developing powerful and expensive PCs, but not developing cheaper client systems. This is to prevent OEMs from developing systems that would affect the demand for Microsoft products. In addition, Microsoft chargers lower prices to OEMs who agree to ship machines within a shorter time with an operating system preinstalled. This prevents customers from noticing an increase in prices for windows. Thus, the pricing behavior for Microsoft reveals that the firm is a monopoly, and it only works to enlarge its monopoly power. This is through increasing the market share for the product and charging different prices (Cabral, 2000).Microsoft monopoly power is shown by its action towards other firms in the market place.
For the past years, the firm has taken actions that reinforce its monopoly power. Microsoft took actions to respond to middle ware threats as they weaken the application barrier to entry. Middle ware technologies developed by other companies are able to weaken the application barrier to entry (O’Sullivan, Sheffrin, 2000). This is because the middleware attract many developers who would develop various middle wares. The developers would also develop middle wares that allow applications to run on middle ware APIs. This would make it easy for consumers to port the applications from one operating system to another. The applications would run on any operating system hosting the middle ware. Microsoft focused on two middle wares that would weaken the application barrier to entry. That is Netscape browser and java technologies. Microsoft felt that if the middle ware were implemented they would be a threat to its monopoly power.
The combined efforts of the middle wares threatened to weaken the application barrier to entry by creating a new way for non Microsoft operating systems to be used instead of windows. In 1994 Microsoft worried about notes distributed by Lotus and IBM (Cabral, 2000). This is because the notes presented graphical interfaces common in many operating systems. Notes also exposed a set of API to developers and enabled developers to distribute sun java runtime. In 1995 Microsoft reacted to Intel native signal processing software as the software interacted with microprocessor independent of the operating system ( McKenzie, 2001). The software also exposed API directly to developers of multimedia. Microsoft reacted to other firms because it feared that the technologies produced by the firms enabled firms to develop user oriented software. The software would make it easy for consumers to use applications without using windows operating systems developed by Microsoft.
Microsoft responded to Netscape products by preventing the company from manufacturing browsers that run on windows. Microsoft wanted to manufacture products that only run on windows. The firm used the strategy above to prevent non Microsoft browsing software’s from weakening the application barriers to entry (Cabral, 2000). Microsoft also declined to assist other forms get information on how to develop products that could run on Windows 95. For example, Microsoft declined to assist Netscape with information on how to develop a browser to function in windows 95.The firm forced Netscape to enter into agreement to form a relationship so as to reveal the information. Other firms also had a similar experience with Microsoft like Intel. Microsoft convinced Intel to stop developing software that enabled developers to develop independent operating interfaces. The main reason for threatening other firms was to overcome competition that could be created by the firms (Cabral, 2000).
Microsoft is a monopoly. This is shown by the pricing behavior of the firm and the relations with other firms. Microsoft has set high prices for its new and old products in the market so as to maximize profits. This is in contrast to price for old products and new products in the market. The company offers lower prices to OEM as long as OEM agrees to sell Microsoft products, and not to develop cheaper products that weaken application barrier to entry. Monopolistic firms occupy large market share and set higher prices for goods and services than their competitors. Microsoft occupies 90% of the market share, and it has set high prices for its product and services. Microsoft relationship with other firms in the market place shows the firm is a monopoly. This is because the firm finds ways of extending its monopoly power and it does not consider other firms. Microsoft prevents other firms from manufacturing similar products. For example Intel, Netscape have had bad relationship with Microsoft. Microsoft has forced the firms to stop manufacturing similar products.
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