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‡ Perfect market
‡ Imperfect market
a. Monopolistic
b. Oligopoly
c. Monopoly
§ Primary characteristics of a monopoly
 ’ingle ’ellers
 No Close substitutes
 Price Maker
 Blocked Entry
¦ ¦c 
  



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.
¦ ¦ ¦ 

¦ 











‡ ’erver O’
‡ Non-Intel-Compatible PC Operating ’ystems
‡ Information Appliances
‡ Network Computers
‡ ’erver-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.

¦

 



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.

^

^
IBM's inability to gain widespread developer support for its O’
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.

^
^  
The inability of Apple to compete effectively with Windows provides another
example of the applications barrier to entry in operation. Although Apple's Mac O’
supports more than 1
,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
^
  

a
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. ’o in reply to this
Microsoft started delaying the I’P¶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.

^
   
  

Although there is no legal secondary market for Microsoft's PC operating

systems, there was a thriving illegal one. ’oftware pirates illegally copy
software products such as Windows, selling each copy for a fraction of the
vendor's usual price.
^
   

The applications barrier to entry does not prevent non-Microsoft, Intel-

compatible PC operating systems from attracting enough consumer demand
and I’ 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.

^
   

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


 iewed 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. ’econd, 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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