A monopoly, by definition, is an organization which engages in unfair and often unethical business practices to dominate an industry and eliminate all competition which might inhibit their profits. In the latter stages of the 19th and the early stages of the 20th centuries, the United States passed several crucial acts, most notably the Sherman Antitrust Act and the Clayton Antitrust Act, which made it illegal to own a monopoly in the United States. Since the early part of this century, the government has only come into battle with a couple organizations on these grounds. The two most notable of these are AT&T and IBM. The Department of Justice won the case against AT&T and forced the company to split into the many so-called “Baby Bells” and “Ma Bell”, or AT&T, the long-distance company. The other notable case was the DOJ vs. IBM. Though the Department of Justice eventually dropped its case, IBM split itself up a mere two years later. A big software corporation, Microsoft, is the target latest of the antitrust trial. It has a current market capitalization of $323 billion, and used to be the highest valued corporation in world before a court ruled on April3, 2000 that Microsoft violated the antitrust laws on. On the other hand, Microsoft immediately announced its appeal on the same day.
The government’s central argument has been that Microsoft employed predatory tactics in the browser market, not for the purpose of dominating in the browser market, but for the purpose of protecting its dominance in the operating system software market. To substantiate this claim, the government has argued that Microsoft spent more money improving IE than could be justified on the basis of its likely return in the browser market alone. Actually, the decision to sell IE at zero price reveals that Microsoft was not motivated by obtaining profits in the browser market. The integration of IE into Windows was solely for the purpose of harming Netscape, and Microsoft used its power in the OS market to negotiate contracts with PC manufacturers and web service providers that had the effect of excluding Netscape from major segments of the browser market.
As this paper is written there is a landmark court case proceeding in Washington in front of a federal judge. This case involves the charging of the Microsoft Corporation for violating antitrust laws set up by the government to preserve market competition. A general overview of the accusations brought against Microsoft by the Justice Department was given by Hayes in the Scholastic Update article ...
The OS market is characterized by the presence of network effects, which means that the value of a product is higher if more people buy it. For example, the more people who own fax machines, the more useful it will be for others to also buy them. In the case of the OS market, the more users there are of a particular OS, the more firms will develop software for user with that OS, and then the more people will be willing to pay for the OS; therefore, the presence of network effects makes it difficult to displace a dominant firm, even if a new firm has a superior product. The rapid growth of the Internet has led software firms to develop web-related software applications that run on the browsers, if the market continued to develop along these lines, Netscape’s software had the potential to become an alternative platform to Windows, since Microsoft would no longer have the advantage of having substantially more application written for its OS. In fact there is little evidence that market would have developed in this way in the absence of Microsoft’s actions. It is clear that Microsoft perceived Netscape as providing such a challenge.
The incentives for Microsoft to sell IE at a zero pricing. Browser can steer consumers to a particular portal site. A portal site is website where user enter the web, example of portal are MSN and AOL. Portals are very valuable since they play a central role in directing consumers movement on the web, there is competition among portals in the from of different services that are offered, such as news and e mail, examples of web service providers are Yahoo, Excite and Lycos. Although free web services create value for visitors to a portal, and thereby increase hits at the portal, portal often collect payments from the service providers, rather than paying them, this is because the portal brings consumers to the service providers. Browsers may have an initial default setting to start at particular portal. While the default can be easily changed, many consumers do not make the change. Microsoft may obtain higher overall revenues by giving IE away for free to increase usage and thereby traffic at portal Microsoft chooses (MSN).
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The government pointed out that Microsoft was licensing IE to competing service providers (such as AOL) for free also. This undermines Microsoft ability to obtain high revenues from the MSN. So there must be other motives to Microsoft’s zero-pricing policy. The incentive for Microsoft to set zero-price is to simulate the development of IE related applications that would enhance the value of Windows. The benefit is from protecting OS dominance. In the finding of fact it is concluded that primary motivation for the zero-policy was to maintain dominance in the OS market.
The question is, did Microsoft’s integration made Navigator unreasonably difficult to use? Literally, integration does not preclude Netscape from being used with Windows. In fact, initially after integration took place, Netscape did not suffer and substantial loss of market share, hence the integration on its own seems ok. Microsoft contracted with PC manufacturers to prevent them from removing the IE icon from the desktop. The most notable example of this was Compaq. Basically this was not harmful to Netscape because the contracts did not stipulate the Compaq could not install Netscape or put the Netscape icon the desktop also and Microsoft only contracted with Compaq to put the IE icon on the desktop, for which the paid some price in the form of a reduce price in the licensing of Windows to Compaq; therefore, in principle at least, Netscape could always have negotiate such agreement also. Even though Microsoft offered further price reduction for Windows if Compaq promoted IE exclusively, however, there is some evidence that even in the face of such incentives, Netscape was still installed on 22% of new machines in 1998, it was no very clear evidence hat Netscape was locked out of the market with PC manufacturers.
A lot of people today, mostly microsofties, argue that Microsoft should not be split up since it isnt really a monopoly; Windows has a lot of competitors out there and some of the companies that make them are even bigger than Microsoft. And that is actually quite true: Microsoft has only about 6% of the global software market and only 3% of the global computer market overall. There are several ...
In a similar manner to the agreements with the PC manufacturers, Microsoft also contracted with web service firms, most notably AOL, for the promotion of IE. AOL agreed to integrate IE into their into Internet access software. In return for which, Microsoft agreed to license IE at a zero price and include AOL in its online service folder on the Windows desktop. The agreement allowed for up to 15% of new AOL users to be supplied with Netscape rather than IE, but prevented AOL from ¡§promoting¡¨ Netscape. Again, in principle, Netscape could also negotiate such agreement; there is nothing unique about Microsoft’s situation that allowed them to do this. The fact that Microsoft agreed to put AOL in Windows is no different than if Netscape were offer to pay AOL in hard cash. It is hard to distinguish predatory behavior from regular competitive conduct.
In the fast paced world we live in there are many things we take for granted on a day to day basis. Let’s take a refrigerator. They used to come in different sizes but other than size there was not much of a difference. Today we have refrigerators with automatic ice makers, water dispensers, and drawers with humidity control, in addition to other features. The Microsoft Corporation is trying to make a better ¡¥refrigerator¡¦ or in this case a better version of the popular OS by integrating the IE into it. That is putting it into the heart of Windows so it will work as one. The integrating of Internet Explorer with the Windows OS is the logical step in enhancing consumer’s ease of computer use, and it is not an anti-competitive practice on the part of Microsoft. This type of integration is vital to the advancement of technology. It makes products better. You may not know it but adding things to the heart of Windows has been going on since the day it was made. Things like memory management, disk compression, or networking have been added to the system for more than 17 years. By putting the web browser into the Windows OS it allows the user to do so much more. There would be an easy transition from transferring the data from the web onto your own desktop because the OS and web browser are one. Indeed, Microsoft offered better customer service, such as the Internet Explorer Access Kit (IEAK).
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This service allowed an Internet access provider (IAP) to ¡§create a distinctive identity for its service in as little as a few hours by customizing the title bar, icon, start and search pages, and “favorites” in Internet Explorer. The IEAK also made the installation process easier for IAPs. With the IEAK, IAPs could avoid piecemeal installation of various programs and instead create an automated, comprehensive installation package in which all settings and options were pre-configured. Netscape did not create a similar service until nine months later, and then it charged almost $2000 for something Microsoft offered for free. In other words, Microsoft offered vastly superior service to its most important customers, the Internet access providers.
In conclusion, consumers have a right to purchase many kind of OS in market nowadays, such as Linux (free) and OS/2 by IBM. As I know, there have at least nine OS available in USA market. Therefore, Microsoft is not a dictator (monopoly) in market. In fact, Microsoft’s technological innovations matched and arguably beat those of its competitors. I also very agree that Netscape’s Katz defined this is not only business issue but also a social problem, however, I think this is considered as social benefit, because Microsoft could provide the superior good and service to consumer.