Litigation involving Microsoft Corporation - Essay Example

?A Discussion and Analysis of Litigation Involving Microsoft, Considering the Ethics of the Accusatory Companies, the Department Of Justice, and Microsoft Itself Litigation involving Microsoft Corporation in the past decade displays two practices that can be considered as not competitive or anticompetitive. Microsoft is the biggest provider of computer operating systems that facilitate communication and control of an individual’s personal computer. Microsoft also supplies other famous computer programs. Sales that come from the Microsoft software are huge and it is evident that the company is an energetic and a tough competitor. The complexity of determining competitive behavior from the anticompetitive acts is demonstrated by the Microsoft antitrust case. U.S. Department of Justice filed the case and it accused Microsoft Corporation of a variety of anticompetitive practices (Baumol and Blinder 268). The Microsoft antitrust case brings out many issues such as abuse via bottlenecks and bundling. Abuse via bottlenecks can be illustrated by the dominance of the Microsoft Windows. Microsoft Windows is an operating system that is used in almost (90 percent) all the personal computers. Microsoft Windows is a good example of a problem or an issue that is referred to as bottleneck; bottleneck is a product or a facility that is in the possession of a single company without which the competitor find impossible or difficult to operate. In order to reach majority of the personal computer users, the producer or manufacturer of any spreadsheet, graphics program or a word processor must make use of Windows. It is important to note that there is less likelihood that the competitors or alternative to Windows might capture a large share of consumers (Baumol and Blinder 280). The existence of the bottleneck is in part due to the fact that Microsoft is largely considered as a good program and its user compatibility is considered desirable. There is need for communication between computer users and this can only be facilitated when they use the same or similar operating systems. In other words, there must be an existence of a network between the users of the computer products for them to be able to communicate effectively with one another and thus, the necessity for compatible software. Such a preference offers Microsoft a huge advantage, “because it already has so many users that a new purchaser who values such compatibility will be reluctant to buy a competing product that will make it more difficult to communicate with those many users of the Microsoft products” (Baumol and Blinder 280). The bottleneck problem or issues arises because Microsoft supplies both the Windows and most of the applications such as Internet Explorer (an internet browser), Excel (this is a spreadsheet program), and Word (this is a word processing program). However, it is worth noting that it is not illegal to become the owner of a bottleneck (Baumol and Blinder 280). The worry about the bottleneck owner (such as Microsoft) is that it uses its bottleneck product (that is, Windows for Microsoft) in a manner that it favors its programs and impairs programs supplied by the competitors (Baumol and Blinder 281). Bundling is described as the pricing agreement under which a substantial discount is offered by the supplier to the consumers if they purchase various products from the firm, “so that the price of the bundle of products is less than the sum of the prices of the products if they were bought separately” (Baumol and Blinder 281). Bundling can be either legitimate or illegitimate. Microsoft has sponsored its products through the provision of cheap products to computer manufacturers if they purchase Microsoft programs bundles rather than purchasing Windows alone. This form of practice indicates that the rival manufacturers of Internet browsers, spreadsheets, and word processors are disabled in promoting their products to personal computer owners (Baumol and Blinder 281). There are questions regarding the legitimacy and illegitimacy (for instance, if the bundling is a form of predatory pricing whose aim to destroy the competitors) of Microsoft low bundle price of its products. Economists argue that bundling discount is legal only when it is cheap for the company to supply various products at once than when they are supplied separately, and if the discount corresponds to cost saving. Microsoft has been accused by the government for their anticompetitive practice; for instance, it has been accused of monopoly maintenance, attempted monopoly, linking products, and others. The issues and the findings by The Court of Appeals for the District of Columbia Circuit found that Microsoft Corporation had violated the antitrust law (Labaton 1). The law in the United States, states that for a firm to become a monopoly, it must possess the power to exclude competition or control the prices. The monopoly is considered illegal if the company gets the power through means such as blocking the other companies rather than by possessing good business strategy or better products. For instance, in the Microsoft’s situation, the market consisted of PC (personal computers) operating systems that relied heavily on the microprocessor chips from Intel. The findings by the Court of Appeal indicated that Microsoft had indeed used the monopoly illegally through the restriction of licenses that were imposed on the software and computer makers and the Internet service suppliers or providers. However, claims made by Microsoft against the government were dismissed; Microsoft claimed that the government was required to and it has failed to offer evidence concerning the direct link between the firm’s monopoly and its anticompetitive practices. The Court of Appeal argued that it would be contrary to the Sherman Act to permit monopolists to squash the competitors at will specifically in this age where the industries are dominated by rapid technology advancement and the regular paradigm change (Labaton 1). Other than the issue of Microsoft’s monopoly in the operating systems, the government also attempted to prove that firm attempted to develop a new control or monopoly in the internet browsers. The ruling made by Judge Jackson was in favor of the government and the findings indicated that Microsoft had attempted to utilize its operating system to compel the consumers to use the systems browser. However, the Court of Appeal overturned the finding and ruled that the lawyers representing the government had not adequately defined the meaning of a relevant market and they had no evidence regarding the significant barriers to entry within the browser market. From these litigations involving Microsoft Corporation, it is evident that the company has dominated the market in terms of the operating systems and the associated applications. Its mode of monopoly and the provision of products and services had not pleased the government. Thus, the company has been accused of violating the antitrust laws. It is true that Microsoft dominates the market in terms of what it offers. However, many products that are offered by the company are not compatible with other company’s products. This has made it impossible for people using other companies’ products to network with those using Microsoft’s products. For these products to be compatible, they must be in line with the Microsoft’s Windows. Thus, Microsoft has gained a huge advantage over the companies in terms of the programs compatibility. The pricing of their products and monopoly are other issues raised against Microsoft by the government. According to the rulings made by the Court of Appeal, Microsoft has violated the antitrust laws. It is important to note that Microsoft has not created a fair market where competition can thrive. Instead, it has thrown out most of its competitors from software and computer production. Works Cited Baumol, William, J. & Blinder, Alan, S. Economics: Principles and Policy. Mason, OH: Cengage Learning, 2011. Print. Baumol, William, J. & Blinder, Alan, S. Microeconomics: Principles and Policy. Mason, OH: Cengage Learning, 2007. Print. Labaton, Stephen. “U.S. Vs. Microsoft: The Overview; Appeals Court Voids Order For Breaking Up Microsoft But Finds It Abused Power.” The New York Times 29 June 2001. Print. Read More