Monopoly case study

how can a firm,enjoying monopoly be a threat to

new entrants in reference of

microsoft ( ref. U.S. v Microsoft : court’s finding of facts )

Presented by:-

• Nikunj jain• Ritu choudhary• Roma chatterjee• Mithilesh yadav• Rohan Somaiya

Types of market:

• Perfect market• Imperfect market

a. Monopolistic

b. Oligopoly

c. Monopoly

Characteristics

Primary characteristics of a monopoly• Single Sellers• No Close substitutes• Price Maker• Blocked Entry

1.1 Microsoft relevant market

In 1990’s there were no products to substitute for Intel-compatible PC operating systems without incurring substantial costs. Furthermore, no firm that did not market Intel-compatible PC operating systems could have started doing so in a way that would, within a reasonably short period of time, present a significant percentage of consumers with a viable alternative to existing Intel-compatible PC operating systems. It follows that, if one firm controlled the licensing of all Intel-compatible PC operating systems world-wide, it could set the price of a license substantially above that which would be charged in a competitive market and leave the price there for a significant period of time without losing so many customers as to make the action unprofitable. Therefore, in determining the level of Microsoft's market power, the relevant market would be the licensing of all Intel-compatible PC operating systems world-wide.

1.1.1 Demand substitutability

• Server OS• Non-Intel-Compatible PC Operating Systems• Information Appliances• Network Computers• Server-Based Computing Generally• Middleware

Firms that didn’t produce Intel-compatible PC operating systems. once a firm had written the necessary software code, it could produce millions of copies of its operating system at relatively low cost. To the contrary, they indicate that the demand for a new Intel-compatible PC operating system would be severely constrained by an intractable "chicken-and-egg" problem: The overwhelming majority of consumers will only use a PC operating system for which there already exists a large and varied set of high- quality, full-featured applications, and for which it seems relatively certain that new types of applications and new versions of existing applications will continue to be marketed at pace with those written for other operating systems. Unfortunately for firms whose products do not fit that bill, the porting of applications from one operating system to another is a costly process.

1.1.2 The Possibility of Supply Responses

2.1 Applications Barrier to Entry

The experiences of IBM and Apple, Microsoft's most significant operating system rivals in the mid- and late 1990s, confirm the strength of the applications barrier to entry.

2.1.1. OS/2 Warp IBM's inability to gain widespread developer support for its OS/2 Warp operating system illustrates how the massive Windows installed base makes it prohibitively costly for a rival operating system to attract enough developer support to challenge Windows.

2.1.2. The Mac OSThe inability of Apple to compete effectively with Windows provides another example of the applications barrier to entry in operation. Although Apple's Mac OS supports more than 12,000 applications, even an inventory of that magnitude is not sufficient to enable Apple to present a significant percentage of users with a viable substitute for Windows

2.1.3. Microsoft and Netscape Microsoft knew in the fall of 1994 that Netscape was developing versions of a Web browser to run on different operating systems. It did not yet know, however, that Netscape would employ Navigator to generate revenue directly, much less that the product would evolve in such a way as to threaten Microsoft. So in reply to this Microsoft started delaying the ISP’s services and even licensed it which otherwise it even provided free. Just after Netscape launched its browser in 1994 Microsoft launched its browser in 1995.

2.1.4. Price Restraint Posed by Piracy

Although there is no legal secondary market for Microsoft's PC operating systems, there was a thriving illegal one. Software pirates illegally copy software products such as Windows, selling each copy for a fraction of the vendor's usual price.

2.1.5 Fringe Operating Systems

The applications barrier to entry does not prevent non-Microsoft, Intel-compatible PC operating systems from attracting enough consumer demand and ISV support to survive. It does not even prevent vendors of those products from making a profit. The barrier does, however, prevent the products from drawing a significant percentage of consumers away from Windows.

2.1.6 Irrelevant pricing

Microsoft charged 89 $ for its OS license renewal when it could have been done just in 49 $ profitably.

• Viewed together, three main facts indicate that Microsoft enjoys monopoly power. First, Microsoft's share of the market for Intel-compatible PC operating systems is extremely large and stable. Second, Microsoft's dominant market share is protected by a high barrier to entry. Third, and largely as a result of that barrier, Microsoft's customers lack a commercially viable alternative to Windows.

• Innovations that could have been of benefit to consumers might never occur for the sole reason that they do not coincide with a monopoly’s self- interest. 

• Monopoly cant be entertained as it not only harms industry but leads to social evils.

• Monopoly cant be entertained by government even though it might sound beneficial in short run but cant fulfill overall objective in long run. E.g. AT&T.

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3.0 Findings

Thank you!