1) What is the key legal issue in the Microsoft case?
Based on the Microsoft case study, the key legal issue is that Microsoft Company violated the liability law under clause 1 and 2 of the Sherman Act ("United States of America, Appellee v. Microsoft Corporation, Appellant, 253 F.3d 34 (D.C. Cir. 2001)", 2018). The law relates to the fact that Microsoft Company was determined to create and maintain a monopoly in the industry therein. Following the District Court ruling, Microsoft strove to maintain a monopoly in the Intel-compatible personal computer (PC) operating systems. In the second violation, Microsoft attempted to create a monopoly power in the internet browsers industry by illegally tying two of its separate products together. In this case, these products include Windows and the Internet Explorer. Despite the judgment by the District Court stating that Microsoft violated 1 and 2 of the Sherman Act, the company files an appeal claiming that the judgment was compromised. Nevertheless, in-depth analysis and investigating still affirms that various Microsoft practices are consistent with the intent to develop a monopoly power in the market (Baye, 2010).
2) Do you think Microsoft intentionally tries to create monopolies or are their products simply so good they take over their respective markets and gain majority market share?
Based on the case study, it is evident that Microsoft adopts strategies that aim at creating a monopoly power in the market ("United States of America, Appellee v. Microsoft Corporation, Appellant, 253 F.3d 34 (D.C. Cir. 2001)", 2018). Furthermore, in the judgment, the government affirms that Microsoft created a monopoly power and further took advantage of the strong financial position to create strong barriers to entry in the particular platform market. In this case, a platform refers to a software interface where various programmers write and develop the customized application. Microsoft Company has Windows as the leading platform that also functions as an operating system. Although Windows hold the greatest market share, other platforms with similar functionalities include the Linux and Mac OS which had an ample market share as well. Nonetheless, these platforms allow programmers to write the application on Web servers without necessarily integrating Windows. For this reason, Microsoft supposed a fore coming threat to its monopoly power for the Windows product and thus incorporated strategies that created high barriers to entry into the platform market. The strategies include tying the Web services to the Windows and setting predatory prices that made the platform market platforms impenetrable for new users.
Microsoft created the high barriers to entry into the platform market to beat the threat of competition from other platforms entering the market. Moreover, Microsoft was already exercising monopoly power as it holds up to 97% of the market share (Baseman, Warren-Boulton & Woroch, 2000). Nonetheless, Microsoft claimed that the increased customer value was as a result of the expansion of the fringe firms leading to the high barriers to entry. It means that there was a tendency that programmers would prefer to write applications and develop programs for the operating system that has the largest market share in the industry. As a result, it would provide a wide customer base for the application therein and thus raise the customer value as well. For this reason, most of the application writers designed programs for the Windows operating system and thus translating to the increasing customer value therein. As more application writers develop programs for Windows, Microsoft monopoly power continues to increase while the barriers to entry also become high. For this reason, it allows Microsoft to charge higher prices for the products without the threat of losing the market share. It thus shows that Microsoft customers were not given the freedom of choice for the browsers to consume but rather accept the price therein.
3) Do you think competitors like to keep Microsoft in court so there is confusion in the marketplace that they can take advantage of to strengthen their market share?
Although Microsoft tends to face recurrent lawsuits from its competitors, the cases do not show that the competitors strive to take advantage of confusion in the market to acquire a higher market share (Chakraborty, 2014). Rather, competitors strive to create fair competition in the markets by creating a free market where consumers have the freedom to choose the products to consume in the market. It is necessitated by weakening the monopoly power that Microsoft tends to exercise (Baseman, Warren-Boulton & Woroch, 2000). Following the increasing monopoly power that Microsoft exercises, it increases the barriers to entry limiting competitors operate competitively. Moreover, as Microsoft holds a broader market share, competitors lack a chance to operate in the market efficiently and thus threatening their sustainability in the industry therein.
4) Address and interpret the causes of market failure and perform comparative statistics to determine the impact of market failure on efficiency.
Market failure refers to the situation where a particular market fails to allocate the available resources effectively. More often, markets fail when they are left to operate freely without the integration of the government intervention therein. Nevertheless, other factors drive a market failure in any case whatsoever (Baye, 2010). These factors range from government intervention to externalities, public goods, and market control. Government intervention is paramount in ensuring that markets function efficiently. Government inefficiencies thus may lead to market failure. For instance, a lack of government intervention does not create a regulation thus makes the leaders understand the interests of the public. In this case, the market is not governed by rules that relate to the economic policies of the sate herein. Consequently, lack of government intervention denies the law the mandate to hold accountable the parties that aim at abusing the monopoly power in the market.
Externalities also cause market failure by leading to inefficient allocation of resources in the market. Ideally, an externality refers to a benefit that is not included in the price of the demand or a cost price excluded in the price of the supply therein. As a result of the exclusion, the total demand price of the product does not represent the true value of the good produced while the supply does not show the whole value of the goods not produced (Hetzel, 2012). Externalities may either be positive such as education while negative externalities include pollution. These elements make the market equilibrium to achieve an efficient allocation of resources therein. Lack of public goods can also lead to inefficiency in the market. Ideally, public goods refer to the products that tend to consumed simultaneously by a large number of consumers without imposing an opportunity cost to other products. Sometimes, the markets may provide the public goods at zero prices and thus leading to inefficient allocation of the goods therein leading to market failure. Market control is also a critical factor that leads to market failure. It occurs when the buyers and sellers in the market have a significant influence in determining the price and quantity of goods and services in the market. As a result of the inability to control the market price, the market fails to equate the demand price and the supply price leading to inefficiency. Market control may occur in both the demand and the supply side where the monopolies abuse their power in the market to maximize the profits (Baseman, Warren-Boulton & Woroch, 2000).
The occurrence of market failure has a subsequent impact on the economic efficiency of the market therein. Besides, with market failure, markets fail to utilize the economic efficiency to the maximum. As a result, it leads to a loss of economic efficiency and economic breakdown therein. Nevertheless, some government policies can act as a remedy in restoring the economic efficiency in the market (Hetzel, 2012).
Baseman, K., Warren-Boulton, F., & Woroch, G. (2000). Microsoft Plays Hardball: The Use of Exclusionary Pricing and Technical Incompatibility to Maintain Monopoly Power in Markets for Operating System Software. SSRN Electronic Journal. doi: 10.2139/ssrn.241988
Baye, M. R. (2010). Managerial economics and business strategy. New York: McGraw-Hill/Irwin.
Chakraborty, A. (2014). The Conflicting Economic Views Emerging from the Microsoft Antitrust Case: Literature Review. SSRN Electronic Journal. doi: 10.2139/ssrn.2373708
Hetzel, R. L. (2012). The great recession: Market failure or policy failure?. Cambridge: Cambridge University Press.
United States of America, Appellee v. Microsoft Corporation, Appellant, 253 F.3d 34 (D.C. Cir. 2001). (2018). Retrieved from https://law.justia.com/cases/federal/appellate-courts/F3/253/34/576095/
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