The modern industrial age has given rise to companies which span international borders and which can employ hundreds of thousands of individuals. There are considerable profits to be made in this global environment, and companies often seek to become as large as possible in order to realize economies of scale as well as pose significant competition to others. Monopolies and trusts have long come under fire from government regulators, and Microsoft is only the latest company to struggle against possible government intervention. But it is not always clear what the long-term ramifications of breaking up large monopolies will be. For example, the breakup of Standard Oil resulted in several large oil companies, including Exxon and Mobil, which are now considering mergers with other oil companies. This research considers the market in which Microsoft competes, the type of competition within that market, and the microeconomic effects of breaking up Microsoft.
A monopoly is a market with a single seller. In this market, the monopolist company faces a downward sloping demand curve and is characterized as a price maker, meaning that the monopolist can charge any price along the demand curve because the company is the only vendor for the product. In perfect competition (characterized by many sellers), competitors are price takers, meaning that buyers have considerable power because there are multiple sellers in the market (Browning & Browning, 1991, p. 273).
An oligopoly is a market characterized by only a few sellers who share an interdependence. The goods produced in an oligopoly can be either differentiated or undifferentiated, but the number of sellers and their relationships is the salient defining characteristic of the oligopoly (Browning & Browning, 1991, p. 335). Within the oligopoly of the applications software market, Microsoft is the undisputed leader, much as AT&T is the leader in the long distance telephone market. ...