Monopoly Market Structure - Microsoft Corporation - Essay Example

Internet Explorer web browser led to the browser wars since all windows users had a copy of internet explorer this, therefore, constrained the market for other competitors for web browsers. However, the others were considered of poor quality by Microsoft.

There then arose a question of whether Microsoft had altered its applications to favor internet explorer over other browsers. The defendant was also accused of forming restrictive licensing agreements with other original equipment manufacturers which was a bad code of conduct. In its defense, Microsoft argued that Microsoft windows and internet explorer were combined to enhance innovation and competition therefore, the two became the same product which facilitated consumers to get all the benefits of internet explorer free of charge. This was contrary to the plaintiffs who argued that the browser was a distinct product that did not require a combination with the operating system.

A monopoly market structure is a market in which there is a single supplier of a product (Boyes & Melvin, 2008). The firm is referred to as a monopolist and its product has no close substitutes. Boyes & Melvin further pointed out that” a firm that has monopoly power is a price maker rather than a price taker” (p.567). The characteristic here is that it sets the price of the product and the marginal revenue will be less than the prices for monopolies firms hence the downward-slopping demand curve. Moreover, in this case, Microsoft altered internet explorer to be favored and be socially preferred by many users over other browsers in the market. Consequently, when a single big firm’s product becomes socially preferable to those of its competitors, it is known as a natural monopoly (Goodwin et al, 2008). The market structure of a pure monopoly is characterized by one seller in the market, the goods being sold have no substitute and there are barriers to entry into the market by other firms. In the stated case, Microsoft’s products were highly differentiated and this strengthened its market power and economic profits increased due to the imperfect competition it created.

“Barriers to entry are economic, legal or deliberate hindrances aimed at keeping off new entrants/sellers from entering a market (Goodwin et al 2008, p 307). This was practiced by Microsoft when it formed restrictive licensing agreements with original equipment manufacturers to prevent other firms from being used in the market. This also created economies of scale in software products since manufacturers did not need other premises or industries to produce software for their products, and the result would be forcing some firms out of some markets. Since the development of new technology attracts huge costs, patent copyrights, and other legal barriers and protections may be granted by governments to encourage research and innovation. This creates a monopoly and is also called a government monopoly (Goodwin et al.2008). Based on all these factors in Microsoft’s case, I agree that it was trying to gain monopoly power in the computer software industry.

In his article, (Thibodeu1999) argued that there are advantages to monopoly such as control of vast resources and production of goods on a large scale since it enjoys economies of scale in production. A monopoly is also regarded to have a stable environment in terms of demand and stable employment for workers. Therefore with these views, monopoly cannot be said to be always bad.

An example of a good monopoly is the water distribution company. It has monopoly power on water distribution thereby enjoying a natural monopoly. This is because it would make no sense to have many companies providing tap water since the large-scale infrastructure makes it efficient to have one firm in operation. Read More