Case Study Economics- Microsoft and Monopoly

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Microsoft and Monopoly
Case Study of Strategies used by Microsoft to leverage its monopoly position in operating systems in Internet Browser market


Microsoft has monopoly in PC operating systems, Windows operating systems which are used` in more than 80% of Intel based PC’s. This market has high technological barriers. Threat to Microsoft is not from new operating systems but from alternate products such as browsers, which are new softwares that can be used with multiple operating systems and can also act as an alternative platform to which applications can be written. This posed a threat to Windows monopoly and perhaps its long-term existence.

Initially Microsoft had tried to subdue competition by asking for explicit market sharing agreements with competitors (such as Netscape). A failure to do so, allegedly, led Microsoft to adopt anti-competitive strategies. This led to a set of consolidated civil actions against Microsoft in 1994 by the United States Department of Justice (DOJ) and twenty U.S. states. DoJ alleged that Microsoft abused monopoly power in its handling of operating system sales and web browser sales.


The issue central to the case was whether Microsoft was allowed to bundle its flagship Internet Explorer (IE) web browser software with its Microsoft Windows operating system. Bundling them together is alleged to have been responsible for Microsoft's victory in the browser wars (specifically Netscape) as every Windows user was forced to have a copy of Internet Explorer. It was further alleged that this unfairly restricted the market for competing web browsers (such as Netscape Navigator or Opera) that were slow to download over a modem or had to be purchased at a store.

Underlying these disputes were questions over Microsoft’s allegedly anti-competitive strategies – to impose high entry barriers – including forming restrictive licensing agreements with OEM computer manufacturers, entering into exclusionary...
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