Microeconomic Effects of the Breakup of Microsoft

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. 27

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for Office 2000, a strategy which allows users to rent or lease software, and which makes the future prospect of downloading software directly from the Internet, or running software directly on the Internet, more appealing, particularly to the all-important corporate customer (Caron & Gerwig, 1999, p. 15). Problems with Oligopolies The difficulty in declaring Microsoft a monopoly is that the company does not compete in only one market. In 1999, it was estimated that Linux (a free operating system) had a three percent market share for all personal computers. Apple, which runs a proprietary operating system, had an additional 15 percent share (approximately), and Microsoft is estimated to have had an 80 percent share of the operating market for personal computers ("The Myth," 2000, p. 49). Microsoft has built its business around the personal computer, but today's computing environment is moving away from the personal computer and toward client-server technology. The Web has changed the way in which we use computers, and (in a move which Microsoft itself helped to foster), the Internet may well eliminate (or drastically reduce) the need for locally resident software on personal computers. Instead, users will run software appli

Category: Economics - M