An example of this is the legal battle between Be Inc and Microsoft, of which Be Inc accused Microsoft of using its monopoly power to drive Be Inc out of the market. In order to compete with Microsoft, Be Inc went as far as offering its BeOS operating system free to any computer vendors who would sell it preinstalled. However this offer was declined, for what Be Inc suspects were fears of Microsoft raising its price of Microsoft Windows for the one particular vendor, therefore forcing them to have low profit margin or high prices, thus pricing them out of the computers market.
Because there is a limited choice for the consumers, they have no other alternatives to turn to even if they are not satisfied with Microsoft product.
Another method Microsoft uses to bully other businesses is to use its dominance in desktop operating system to leverage market share in other sectors of the computer market, such as web browsers, office software and streaming medias. By including these supposedly free products with Microsoft’s monopoly product Windows Operating System, it results in less sales for other companies, and it is something they cannot compete with since almost all computers run on Microsoft Windows, this means all other companies’ sizes are always limited so that they cannot grow to an acceptable status large enough to compete with Microsoft’s power and dominance.
This Microsoft products dominance, some suggest, would create a monoculture in which is easy for viruses to exploit, resulting in fast and widespread virus infections that have universal effects. It also results in a multitude of people using Windows, which makes the product even more attractive to consumers, and it also means the small to almost non-existent market share of other aspiring competitors makes it prohibitively expensive for them to develop their products into an acceptable substitute for Windows. This then keeps Microsoft’s competition to a minimum, which may be good for Microsoft, but it leads to greater, serious long term impact on the software market. These impacts are usually restricted by America’s Anti-Trust law.
The Anti-Trust laws of USA is set in order to allow companies to compete vigorously against each other, which would then lead them to come out with better products quicker and with lower prices during the competition process. However, because of Microsoft’s dominance, it is not as necessary for it to compete so much, so it destroys the company’s ability to innovate and improve its products, as they do not need to spend the extra finance on this since they do not have many competitors, this, then lead to slow product development, and ultimately, consumers do not get the best products and new inventions, and if they do, a premium price is charged, which may exclude those with lower income status. This may then lead to overall declination in the social welfare because those consumers must chose second best products available or unable to afford any at all.
However, monopolies like Microsoft do have some advantages for the consumers and the software market as a whole.
Having a monopoly means the consumers can save money on information and information processing costs associated in a perfectly competitive industry, where the consumers have to search around for what they perceive to be the best deal or product. In many cases, the cost of doing so can exceed the benefit of consuming the best brand versus just a randomly selected brand. This however, will not be a problem as in a monopoly, only one is available so information gathering is relatively inexpensive, and as there is only one brand, much more information can be gathered quickly and efficiently.
Another advantage is according to the mathematician Harold Hotelling’s Hotelling’s Law which shows there are cases when monopolies can generate benefits for the consumers, as they are prepared to spread their business in the market and are more willing to take risks and invest. For example, in a population evenly distributed area, a coffee shop may be opened the centre of the area in order to attract the most consumers and to allow all of them to reach the coffee shop with the same efficiency. However, when a competing brand comes along, he will do his best to place his coffee shop next to the existing shop in the centre as well in order to gain the same advantages and half of the market share. However a monopolist who owns both shops, on the other hand, would place the two coffee shops further apart in order to allow even distribution of supply in the area, thus benefiting the consumers, as the efficiency of getting the same products is improved and also the smaller segments of the market is targeted. It would also enable the monopolist to gain benefits of economies of scale, allowing them to have lower average cost per product, therefore the may benefit the consumers with a lower price. Microsoft, does demonstrate this, as they are willing to invest and have employees in 102 countries, allowing them access to a global market and resources in even the smaller nations, thus benefit the consumers in those countries, at the same time Microsoft achieves massive economies of scale.
Also because all the power is concentrated to one business, it means all the resources and R&D are pooled together instead of separated across several companies, which means less capital is wasted in total on invention and improvement of a new product, since no several companies are doing the same thing at the same time.
However, despite the advantages, it can seem Microsoft’s monopoly power’s negative impacts outweigh its positive impacts on the US consumers and software market. As already explained Microsoft often abuses this power and influence to raise barrier to entry, and to keep existing competitions minimal. This results in fewer choices for the consumers and reduces market and product advancement produced by competitions between companies.
In order to prevent Microsoft becoming too powerful, regulations need to be put upon the company in order to promote fair competition, as shown by several examples of the controversial trials involving Microsoft. The Anti-Trust Law is therefore used to regulate monopolies, with the government able to turn monopolies into publicly owned, or forcibly break it up, as Microsoft came close to during one of its trials. Microsoft is regulated in Europe as well because of abusing of market dominance. In March 2004, the European Union forced Microsoft to produce a Windows Media Player free version of operating system known as Windows XP Home Edition. Clearly then, Microsoft’s monopoly power is felt throughout the world and must be controlled in order to promote healthy competition which can benefit the consumers.
