Microsoft versus European Union: Anti Competitive Behaviour or Competitive Advantage - Case Study Example

?Microsoft Vs European Union: Anti Competitive Behaviour Or Competitive Advantage? Table of Contents The European Union - Microsoft Case 3 Microsoft’s Behaviour: Anti Competitive? 5 5 The View of Microsoft’s Position from the General Theoretical Prospective 7 Evaluation of Microsoft’s Behaviour 10 References 12 Bibliography 15 The European Union - Microsoft Case Microsoft is a globally renowned company dealing in sectors related to information technology. It is considered as one of the largest companies which deal in the field of software. It has received many criticisms regarding its products and business strategies. The case in between Microsoft and European Union is the result of the claims raised by the European Union against Microsoft regarding its anti-competitive behaviour (Microsoft Corporation, 2011). The case is related with the competitive practices of power that is or can be utilized by the company. This case is held by the European Commission belonging to the European Union. The case is held against the company, Microsoft which is accused of mistreating its leading market position. The company was held guilty by the European Commission, according to the competition law. The European Commission put forward their argument that Microsoft was misusing their power of monopoly for the sale of operating systems of Personal Computers (PCs). The company was held guilty on the basis of two grounds, firstly Microsoft was accused of intentionally restricting interoperability between Windows PCs and other non-Microsoft workgroup servers, and secondly the step it had taken in relation to tying its Windows Media Player with its mostly used Windows Operating System. Tying the product, Windows Media Player with the Windows Operating System was the step adopted by the Microsoft to avoid the competition for the product (CentrePiece, 2007). The European Commission, after five years of intense investigation, held the company to be guilty as these practices of business in gaining competitive advantages in the market were considered as unfair and illegal means as stated by the Article 82 of European Union Law. The fine penalised to the company was considered to be the largest amount ever charged for such an action of an antitrust violation in Europe i.e. €497 million (CentrePiece, 2007). The case commenced in the month of December of the year 1998, with the complaint stated by the company, Sun Microsystems and ended with the decision given by the European Commission in March of the year 2004 (Microsoft, 2011). In addition to the penalty implemented, the Commission also insisted on major solutions, which included mandatory licensing of intellectual property. The initiatives taken by the European Union demanded that the Microsoft needs to reveal entire documentation interface within the time period of 120 days, with the accurate data. This step was taken with an intention to permit other non-Microsoft workgroup servers to gain full interoperability with Microsoft’s Windows PCs and servers. Another step adopted by the European Union (EU), provided Microsoft a limit of 90 days, within which the company was supposed to offer the personal computer manufactures a version of its Windows client PC operating system without the Windows Media Player. Again, on January 15 of the year 2009, the European Union stated new objections to the company, delineating the initial view of the European Commission that Microsoft is tying its web browser ‘Internet Explorer’ to its central operating system. Microsoft over ruled the European Commission Treaty rules, as stated by Article 82 on misuse of the leading position in the market by the company and has tried to eliminate the competition based on the qualities among the competing companies dealing with web browsers (The United States Department of Justice, 2005) Microsoft’s Behaviour: Anti Competitive? For more than couple of decades, Microsoft has been considered to be a company which has been vigorously involved in designing extremely successful campaigns with an intention to sustain and extend further its monopolies in the existing markets. Their campaigns even involve negative criticisms regarding the products of their rivals or competing companies. Microsoft has been very active in making allotment of market proposals to the competitors. It can also be said that the company has used various methods of anticompetitive practices and illegal methods to enhance its competitive advantages in the markets. In the process, the company has adopted even such tactics which were designed to abolish their rivals, though it can be consistently referred as unfair means of operation of business. For instance, Microsoft’s tying its dominant product i.e. Windows Operating System with its other products i.e. ‘Windows Media Player’ or ‘Internet Explorer’ which are facing competition in the market (European Committee for Interoperable Systems, 2009). Microsoft operates with many products which help the company to enjoy the monopoly in the market such as Microsoft Office suite of productivity applications and it has the most dominating product ever launched in the market, Windows Operating System. Product differentiation is a significant aspect; however the strategy adopted by Microsoft is completely unfair methods by nature which demanded such a legal interference accompanied by huge sum of penalty. Though the company had been penalized millions of Dollars for their malpractices, these contributions of huge amount have turned out to be a minimum in front of the large revenue generated as a result of these unfair means (The European Union, 2004). The European Competition Commissioner Mario Monti’s statement signifies that leading companies are entrusted with a certain responsibility to ensure that their operation of business does not have any adverse impact in the market. For instances, the business functioning should not restrict competition on the merits on one hand and consumers’ interest should not be hampered on the other and neither should the innovation be restrained. But, the way Microsoft has operated its business does not comply with any of the legal statements. The denial from providing adequate information to the Sun Microsystems was one attempt of anti competitiveness and tying its various products with the core dominant product was hampering the customer interest, transcending it to be another breach of competitive law of European Union (The European Union, 2004). The main purpose of the antitrust laws is to avert anti competitive practices adopted by the powerful dominant companies exiting in the market that have the potential to destroy competitors, constraint the competitors’ competing ability or even can act towards preventing the entry of new rivals in the market (Baumol & Blinder, 2011). Accusations which are related to anti competitive behaviour is the claim which is made frequently in this type of cases, that the defendant has practiced unfair or illegal means to overrule the competitive advantages over the competitors. This is done with an intention to gain the extra share of the market which is obtained by eating into the share of the competitive company by the unfair means making the position of the organisation stronger or monopolistic by nature. And, in addition to it, Microsoft were using its monopolistic power to sell their less popular product, which was again can be referred as exploitation of customer. From a number of perspectives, Microsoft is held guilty, it is found to misuse its monopoly to eliminate any of its potential competitors which is not at all acceptable by the Competitive Law as introduced by the EU. The View of Microsoft’s Position from the General Theoretical Prospective According to Porter (1998), markets expose the companies not only to the related advantages but also with the risk associated. With an intention to gain competitive advantages over the competitors, the organisations develop strategies termed as ‘competitive strategies’, also known as ‘Porter’s Generic Strategies which is shown in the following figure 1: Source: (Porter, 1998). One of the strategies adopted by the organisations to gain competitive advantages over its competitors is known as product differentiation. Product differentiation can be referred to a special quality of the particular product that helps it to stand different from other products which are available in the market with similar functionality, providing it with competitive advantages. Higher level management of every organisation prepares certain strategies to gain competitive advantages. The main goal of every business strategy is to achieve sustainable competitive advantages over its competitors. Porter’s five forces recognised two types of competitive advantages basically known as differentiation advantage and cost advantage. Competitive advantage is said to be existing when an organisation is offering its product with the same benefits as competitors’ products but at a lower price comparatively, this phenomena is also known as cost advantage. And, if the organisation offers the products at the same price with additional benefits or better or unique qualities making its products different from the other competing products, it is known as differentiation of products. These competitive advantages provide the organisation with the positional benefits as these allow the organisation to achieve a better position in the market and claim the position of a leader (Porter, 1998). In the context of the prevailing scenario, Microsoft has adopted strategies to attain leadership in the market. According to Porter’s five forces model (as shown in the figure 2), market is a very uncertain place, so to avoid any risk the company has intended to become very strong and their strategies were prepared in order to eliminate the competitors rather than just avoiding it. Microsoft was a dominant company in the industry which deals with developing operating system and this was a major advantage for them. Their newly launched product ‘Windows Media Player’ was not achieving the desired results and did not reach the potential which was expected by the company. Thus, to overcome this loss, they decided to tie the product to the exiting strong product which can be and proved to be very beneficial for the company (Porter, 1998). And, Microsoft is not the only company to do so. For instance, Intel, the world’s leading company in chip manufacturing, too has engaged itself in this kind of activities, determined to gain competitive advantage in the market (European Union, 2011). Figure: 2 Porter’s Five Force Model Source: (Lima, 2006). Innovation and development are the rights as well as the ways of sustainable development. In this context, Microsoft’s denial to share its information related to the interface with the Sun Microsystems can be taken into the consideration as the business strategies of upgrading their business. Theoretically, it is not compulsory for a company to share their product secrets with their rival companies and the company can adopt any means of innovation, but of course with proper consideration, to develop the products. This can be considered as their product differentiation which enables them to achieve leadership in the market (Jones & Tilley, 2003). Microsoft’s practice of these strategies was constraining any new entry providing them with the market opportunity which was also backed by the theoretical prospective (Ankli, 1992). Evaluation of Microsoft’s Behaviour The tactics and the methods which have been used by Microsoft with an intention to obtain more competitive advantages cannot be considered as a healthy way for operation of business by any organisation. Development and innovation can be the two significant aspects of upgrading the business but the way Microsoft has operated its business in the market can be considered as an example of unhealthy competition, which cannot be entertained. Market is the place where every potential marketer has the right to expose their products and healthy competition is always expected to avoid any kind of unfair means to exploit the customers. Every nation has maintained their individual set of rules to be followed by the operating companies in the market of the nation regulated by the legal bodies. These set of rules are prepared so to protect the interest of the consumers’ and to establish healthy competition among the existing companies. In this context, Microsoft can be observed to be violating certain rules and regulations as set by the European Union. Innovation and product differentiation is the right of the every company and are encouraged. This is also one of the strategies supporting sustainable development of the firm and a company always can come up with different and distinct innovative ideas to achieve it. And, if any nation does not have regulations to control the market, the market can turn out to be vigorously competitive. With the intention to control the competition in the market, Article 82 EC was formulated undertaking the objective of the ‘protection of competition’ where consumer interest as well as healthy competition is taken into account (Gormsen, 2006). However, Microsoft, being a company that enjoys a major market share in the market due to its operating system, was using its monopolistic power to eliminate the competitors, even the potential ones. Moreover, tying up the products that are facing competition and are threatened to be suppressed by the competitors’ products with its exiting dominant product and compelling the customers to buy them, is another misuse of its monopolistic power. Grabbing extra shares of the market is always a tempting offer, too hard to resist. And, Microsoft is not the only company that has been involved in this. Intel is another company that has made misuse of its dominancy to influence its market share (European Union, 2011). References Ankli, R. E., 1992. Michael Porter's Competitive Advantage and Business History. Business and Economic History. [Online] Available at: http://www.h-net.org/~business/bhcweb/publications/BEHprint/v021/p0228-p0236.pdf [Accessed November 08, 2011]. Baumol, W. J. & Blinder, A. S., 2011. Economics: Principles and Policy. Cengage Learning. CentrePiece, 2007. The European Commission versus Microsoft: Competition Policy in High-Tech Industries. Market power. [Online] Available at: http://cep.lse.ac.uk/pubs/download/cp223.pdf [Accessed November 08, 2011]. European Committee for Interoperable Systems, 2009. Microsoft A History of Anticompetitive Behavior and Consumer Harm. Introduction [Online] Available at: http://www.ecis.eu/documents/Finalversion_Consumerchoicepaper.pdf [Accessed November 08, 2011]. European Union, 2011. The Intel antitrust case. Decision in brief. [Online] Available at: http://ec.europa.eu/competition/sectors/ICT/intel.html [Accessed November 08, 2011]. Gormsen, L. Z., 2006. The Competition Law Review. Article 82 EC: Where are we coming from and where are we going to? Vol. 2, Iss.2. Jones, O. & Tilley, F., 2003. Competitive advantage in SMEs: organising for innovation and change. John Wiley and Sons. Lima, T., 2006. Michael Porter’s “Five Forces” Model. Barriers to Entry. [Online] Available at: http://www.cbe.csueastbay.edu/~alima/courses/3551/murdercleaners/fiveforcesporter.htm [Accessed November 08, 2011]. Microsoft, 2011. Backgrounder: Microsoft’s Competition Case in Europe. Microsoft News Center. [Online] Available at: http://www.microsoft.com/presspass/legal/european/EU_Competition_Overview.mspx [Accessed November 08, 2011]. Microsoft Corporation, 2011. Improving Reliability and Saving Millions With Centralized Administration and Disk-Based Data Protection. Customer Success. [Online] Available at: http://eval.symantec.com/downloads/sus/Microsoft.pdf [Accessed November 08, 2011]. Porter, M. E., 1998. Competitive Advantage: Creating And Sustaining Superior Performance: With A New Introduction. Simon and Schuster Simon and Schuster. The European Union, 2004. Commission Concludes On Microsoft Investigation, Imposes Conduct Remedies And A Fine. IP/04/382. The United States Department of Justice, 2005. Section 2 and Article 82: Cowboys and Gentlemen. Department of Justice. [Online] Available at: http://www.justice.gov/atr/public/speeches/210873.htm [Accessed November 08, 2011]. 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