Critical Analysis of Microsoft Monopoly Power - Essay Example

Moreover, the firm will stand to benefit from the economies of production and the cost per unit of products will be lowered (Baumol & Blinder 2011). This will create entry barriers to new entrants. There are various sources of monopoly power. The first source of monopoly power is the control of an important factor of production that is fundamental in the production process (Allen 2003). A firm that has exclusive control on an important factor e.g. technology, land, or production process is likely to acquire monopoly power and hence lock out competitors.

Secondly, monopoly power may also be attained from the government where the government licenses only one firm to be the sole supplier in the industry thus prohibiting entrance from competitors. The monopoly power may also be attained because of the market size i.e. where the market is small; one supplier may supply the whole market. Finally, the amalgamation and mergers of firms in the industry could also create monopoly power. Firms may merge to benefit from the economies of scale production or to avoid competition that could cause losses to the firm.

Such factors may lead to monopoly in an industry (Learning & Moyer 2010). In the case of the software industry, Microsoft has enjoyed monopoly position by creating entry barriers to their potential competitors. Entry barriers arise in terms of high costs, time, quality, and lack of resources to advertise in order to make successful entry. One of the strategies that Microsoft used to lock out their competitors was the large number of applications that were necessary to make an operating system preferred by the end users (Kobie 2009).

The ends users require software that can be used to execute the different functions at once and this will ensure that they get the convenience they require. It would thus expensive for a new entrant to develop software with many applications that will compete those of Microsoft (Kobie 2009). The users of computer software are also likely to remain loyal to Microsoft application software because of the multi application that the soft ware can perform. The second way of creating entrance barrier is by entering into exclusive agreements whereby a firm will enter into agreements that prohibits the use of their competitors’ products.

In the case of Microsoft, the company created exclusive agreements in which the company’s operating software would be solely used in their PC’s (Meller 2009). As a result, their competitors or potential competitors would lack the market for their software and this would make them incur heavy losses that lead to their termination or dissolution. This anti competitive strategy is not healthy for the users of the products, as they will lack a variety of products to make choices from (Mankiw 2008).

They will thus be compelled to adhere to the available and little viable option. These therefore deny the consumers their sovereignty making Microsoft monopoly unjustified. In addition, Microsoft used their financial power and strength to keep their competitors at bay. Monopolists firms make large profits that is can use in lowering the selling price or giving offers that are meant to make their products cheaper compared to those of the competitors (Kobie 2009). Due to this new entrants or existing smaller competitors will be barricaded from accessing the market and hence the continuation of the