Is Microsoft a Monopoly - Research Paper Example

Is Microsoft a Monopoly? Microsoft Corporation, popularly known as Microsoft, is a multinational company with its headquarters in Washington, USA. It began operations in 1975 and since its inception it has gone on to become a giant in the operating systems (OS) industry for laptops and desktop PCs. It has expanded its operations to produce a diverse range of products that include software, search engine and mobile OS among others. The contemporary world is being introduced to new technologies and new innovations all the time. As a result Microsoft’s position as the market leader in its core operations is threatened. Before drawing any conclusions about Microsoft being a monopoly, we must first understand what a monopoly really is. A pure monopoly exists when there is a single supplier (Grant). In another definition monopoly is defined as the only supplier of a good for which there are no close substitutes (Perloff). From the above two definitions of monopoly it is safe to assume two characteristics that a firm must possess to be called a monopoly: 1. Sole supplier: variations may exist regarding the context of the sole supplier. In case of a pure monopoly there will be only one firm in the industry, meaning that the firm is the industry. It can also mean that there is one major firm with nearly the whole market power and other small firms have negligible share of the market that they can be ignored. 2. The firm provides a product or service that is unique and has no close substitutes. Based on the two definitions I believe that Microsoft is not a monopoly. Firstly we must establish the industry, before labeling Microsoft a monopoly. If we consider the software industry then Microsoft is definitely not a monopoly. The software industry is huge with a diverse range of software ranging from OS software in which Microsoft holds a considerable market share to medical software where Microsoft has no market share. The fact is that before classifying a firm’s position in the industry first the industry needs to be defined. If we consider the first attribute then Microsoft is not the single supplier even in the OS industry, where it holds considerable market share. It faces competition from Android OS for tablet computers, Linux, Oracle, Xerox, DEC, Psion, Apple’s OS which is found in most Apple machines, and iOS, Apple’s OS for iPad and iPhones. There are some other OS that are developed on little known platforms, some of the most notable of these OS are: Haiku for IA-32 platform, RISC OS for ARM platform, MorphOS for Pegasos, EFIKA and Amiga platforms. Although these OS are in the market, Microsoft is the industry leader with an enormous market share. It is true that Microsoft has used its market power to engage in practices that barred entry of firms that produced a different OS or some other software that was in competition with Microsoft’s software. Sometimes these practices were unfair and illegal while at other times there were artificial barriers to entry that hindered competition (Bresnahan). For example Microsoft spent millions of dollars to develop its own browser, Internet Explorer, and put it in direct competition with the popular browser by Netscape, Navigator. People preferred using Netscape, however in 1995 Microsoft started allocating hundreds of millions of dollars to its browsing software department. The result of this investment was that Internet Explorer’s quality improved dramatically and by the end of 1997, with the introduction of the new Internet Explorer 4.0, Microsoft’s browser surpassed Navigator’s quality and people switched over to Internet Explorer. However to achieve its superiority over Netscape’s Navigator, Microsoft also made use of predatory pricing technique. It used to provide Internet Explorer at no cost. The browser used to come bundled with Microsoft Windows OS. This zero pricing tactic adopted by Microsoft served no other purpose except to place Netscape at a disadvantage in the market (Klein). These actions show Microsoft’s dominance in the market, not necessarily a monopoly position as people might presume. In modern times Internet Explorer faces competition from other browsers too which can be downloaded from the Internet and used as a substitute to Microsoft’s browser. Some of the famous browsers being used by people are Mozilla Firefox, Google Chrome and Safari. These browsers are gaining popularity day by day as users either switch to alternate browsers, other than Internet Explorer, because they prefer using them. As a result Microsoft is no longer the most dominant firm in the browsing software industry. Taking into account the second attribute of the definition, Microsoft’s OS (in which Microsoft is considered to be a monopoly) has close substitutes. Not only for the OS, there are many close substitutes for some of its other popular products such as Bing, Office and MSN. In the OS industry clearly Microsoft has a dominant position and it is considered a market leader even today with its latest release Windows 7. Until recently, Microsoft used its dominant position to drive out competition in the OS industry or industries for related goods. However in 2007 Dell Inc. decided to take the suggestions of its users seriously and introduced laptops and desktop computers that came pre-loaded with Linux as the OS. This was a major shift in the company’s policy as before 2007 Dell’s machines had Microsoft’s OS pre-loaded in them (Weiss). Now various other computer companies have followed the trend and their machines are also sometimes pre-loaded with Linux instead of Microsoft Windows. Apple has emerged as one of the leading firms in the industry for laptops and desktop computers. It also has a considerable market share in the cell phone industry through iPhone and tablet PC market through iPad. There are millions of users of Apple’s Iphones, Ipads, desktop computers and laptops all over the world. The iPhone and iPad require iOS whereas the laptops and desktop computers use the Leopard OS. Both iOS and Leopard are Apple’s operating systems and all of Apple’s products require these to run. Although most companies such as HP, Compaq, Dell, Toshiba still provide machines pre-loaded with Microsoft Windows with the increase in sales of Apple’s products especially laptops and desktop PCs, Apple poses a serious threat to the dominance of Microsoft in the OS industry. Analysts have compared Apple’s Leopard OS to be at par with Microsoft Windows with some even calling the former to be superior. Leopard also comes with some of Apple’s most popular software bundled with the OS. These include iMovies and iTunes both considered to be at par with Microsoft’s Windows Movie Maker and Windows Media Player. Apple is also considered to be the leader in making innovative products that are better than their competitors. As there are advancements in technology, recent trends suggest that Apple will surely dominate the market for computers. This will automatically increase Apple’s market share in the OS industry as sales of Apple’s computers increase. Due to the distribution of Linux-loaded PCs and laptops by Dell and many other companies as well as an increase in the market share of Apple in the computer industry, Microsoft’s position as the market leader in the OS industry is faced with a formidable threat as a result. Microsoft is innovative. Its products such as Microsoft Windows, Office, and Windows Media Player have all under gone changes to be replaced by newer, faster, stylish and improved versions. It is a fact that Microsoft Office 2011 is much more advanced, having more features and a user-friendly interface compared to its predecessors. The same holds true for its OS. The new OS in the Microsoft Windows series, Windows 7, is clearly far superior then either Windows Vista or the popular Windows XP. However, if Microsoft had been a monopoly then it would have had no need to innovate and produce newer and improved versions of its software (Roblimo). Internet Explorer has evolved from Internet Explorer 1 to the latest version Internet Explorer 10, Microsoft Widows has evolved from MS-DOS to Windows 7 and Microsoft Office was introduced in 1990 has improved greatly in its current version of Microsoft Office 2011. The only reason as to why Microsoft had to make improvements to their software is that they faced potential threats from competitors who were competing with it to gain market share in the industries of its products. Some of the competitors included Linux and Mac OS X in the OS industry; Real Player, VLC player, iTunes in the media player industry; Google in the search engine industry; Google Chrome, Mozilla Firefox, Safari in the browser industry. Had it been a monopoly, Microsoft would have continued to sell the same old products at prices it wished to charge its customers with. It would not have indulged in selling its products at cut-prices in many countries. The fact that it engages in price competition, not common for a monopoly, and innovation strengthens my point that Microsoft is far from a monopoly. In November 1999 Judge Penfield Jackson labeled Microsoft a monopoly in the OS industry. He claimed that Microsoft’s monopoly was protected by 70000 applications that acted as a barrier to entry and new firms would require many diverse applications (70000 to be exact) that were compatible just like Microsoft Windows software that came pre-loaded with many of Microsoft’s other software. However the very fact that there exist a large number of applications similar to Microsoft Windows has made this market competitive and Microsoft can no longer be called a monopoly. Another critic on Judge Jackson’s decision is that his barrier to entry which composed of 70000 applications may be much smaller than the actual figure. Most of the applications were either outdated, were improved versions of the same application, or they were not unique meaning that they had many close substitutes. As a result the number of applications were reduced considerably and the barrier to entry would consist of a few applications which can easily be produced by a firm and thus eliminate this barrier to entry (McKenzie). Microsoft may be a dominant firm and it may hold a very large share in the industry. However based on the definition of monopoly Microsoft cannot be called a monopoly. We also need to keep in mind the competition faced by Microsoft in recent years as well as its pricing strategies for its products. Due to rapid innovations in industries of where Microsoft sells its products it is very difficult for a big firm like Microsoft to meet to the ever changing needs of the market with the result being that it is losing its market share. Based on these arguments, in the end I would reiterate my opinion that Microsoft is not a monopoly. References: Bresnahan, Timothy. F. “The Economics of the Microsoft Case.” Social Science Research Network. March 21, 2002. 24 October 2011 Grant, S. J. Stanlake’s Introductory Economics. Longman 2000. 7th edition. Klein, Benjamin. “The Microsoft Case: What Can a Dominant Firm Do to Defend Its Market Position?” The Journal of Economic Perspectives 15.2 (2001): 45-62 McKenzie, Richard. B. “Microsofts “Applications Barrier to Entry:” The Missing 70,000 Programs.” The Cato Institute. August 31, 2000. 24 Oct 2011 Perloff, Jeffrey M. Microeconomics. California: Addison-Wesley 2003. 3rd edition. Roblimo. “Is Microsoft Still a Monopoly?” Slashdot. December 26, 2005. 24 October 2011 Weiss, Todd. R. “Dell to Sell Linux PCs”. PCWorld Communications. February 26, 2007. 24 October 2011 Read More