Issue concerning nature of Microsoft as a monopoly

Microsoft and U.S. Anti-Trust Policy

The issue concerning the nature of Microsoft as a monopoly is a controversial one. Of course within the company, as well as among Microsoft shareholders, most assert that Microsoft’s business practices are hardly monopolistic, and that it is simply “popular.” However, many outside of the sphere of personal interesting in the company are convinced that the term “monopoly” should have Microsoft in its dictionary definition. As Ralph Nader pointed out in a 1998 ComputerWorld interview, ”

Microsoft’s claim that it is defending its right to innovate is a cruel joke in an industry that sees its best innovators attacked by the company’s anticompetitive actions.” Further, “Microsoft’s agenda isn’t innovation, its imitation, as well as the imposition of suffocating control over user choices and an ever-widening monopoly.”

The background of the DOJ case (in cooperation with 20 U.S. states) began in 1998 in which an investigation was begun culminating in a preliminary ruling on November 5, 1999 finding that Microsoft did have monopoly power. In the following court battle, a 2000 decision by Judge Penfield Jackson ruled that the company’s domination of the operating system market not only constituted a monopoly, but it used its resulting power to quash competition and harm consumers. Further, he proposed a remedy that chilled both Microsoft executives as well as investors to the bone — namely that the company should be broken up into two separate entities (the operating system and the software products).

To the frustration of many, and to the relief of some, the remedy portion was overturned due to allegations of personal bias on the part of Judge Jackson. However, the findings concerning the monopolistic nature of Microsoft were relatively unchanged. Further, under the current Bush Administration, the Department of Justice decided to seek “lesser” antitrust penalties, and settled the case proposing remedies that many in the industry regard as “a slap on the wrist.”

Of course when one considers the legal definition of a monopoly, Microsoft does seem to fit the bill in many conspicuous ways. After all, given the fact that the main characteristic of any monopoly is its exclusive control over any business activity, service or commodity, Microsoft’s 90-95% market control of computer operating systems seems to represent “exclusivity” quite nicely.

Be that as it may, however, there have been significant questions as to whether its popularity or “market dominance” has or is being actively used as a method by which to restrain trade and market entry by other software inventors, companies, and producers. Thus, to answer these questions, one must consider the government’s position on the matter. Further, given that one of the key factors of determining whether a company is monopolistic is that it causes harm to consumers (by reducing output and raising price), one must then consider whether harm is done.

The U.S. Department of Justice charged Microsoft with many anti-trust actions. In simple terms, these include the monopolization of the operating system market, “hard wiring” its web browser into its monopolized operating system in an attempt to eliminate competition, and using its considerable market power to forge anti-competition agreements with other like-product companies.

It is important to note, however, that there are some independent opinions regarding the nature of Microsoft as a monopoly that do not support the government’s claims. For example, many site the facts that 10% of the Intel-compatible computer market does not utilize Microsoft’s operating system, that Apple successfully sells its Mac products, and that other operating systems in fact do exist and are currently being utilized (OS/2, for example) as clear examples of non-monopoly. Further, although Microsoft has held its prices down (some say artificially in order to gain exclusive and dependent market share), many point out that this is simply not the stereotypical monopolistic practice in that when Microsoft did finally raise the price of its operating system, it lost substantial market share (presumably to another product).

Interestingly, many of the competitors with Microsoft are themselves “iffy” regarding the characterization of the company as a monopoly. This is because to acknowledge the nature of Microsoft as a monopoly would certainly translate into an assertion that they, themselves currently have no market share or power. Of course, if this were the case, they would hardly exist. However, the vast majority of companies welcome the Department of Justice action in that it opens up the market for more involvement via outside assistance and regulation.

Of course, perhaps the most interesting (and telling) aspects of the Microsoft monopoly case is the fact that many non-competing individuals and entities also support the claim that Microsoft is a monopoly. This, perhaps more than any other indicator, points to the possibility of public harm due to the companies business practices. In fact, even foreign governments such as China have taken steps to end the supposedly monopolistic hold Microsoft seems to have on software world wide. Consider the following:

On 20 August 2003, China’s government introduced a policy whereby all PRC government ministries must buy only Chinese-produced software at the next upgrade cycle. This policy is intended to break the dominance of Microsoft on desktop computers, by removing Microsoft’s Windows operating system and Office productivity suite from hundreds of thousands of Chinese government computers.

One important point to consider in this question is also Microsoft’s overall operating strategy as a “plan” for monopolistic practices overall. This means that in consideration of individual components like the operating system debate, it may be possible to make points against the assertion that Microsoft is a monopoly. After all, as previously stated, the company has kept its price competitively low. However, many assert that this is part of an overall plan to monopolize the market in other key areas. In effect, they assert that perhaps the operating system is simply the “bait” that will eventually force the consumer’s choice regarding other products later on (and at a higher price).

The best and most often cited example of this practice that has been proposed by many is that the company can use its virtually (again, 90-95%) market share of computer operating systems to gain exclusive market share of other areas including web browsers, server operating systems, application software including office and excel, and even streaming media applications.

Be that as it may, the current state of Microsoft after the DOJ settlement is hardly rocky. To be sure, there are some concessions that Microsoft has to make, including the release of 272 pieces of code as well as 113 proprietary software “protocols” that server makers can utilize and, more importantly, license to make their products work better with Windows desktops. Additionally, Windows updates are now modified to allow individuals and companies to add and remove features to Windows, thereby allowing the use of other software products on their platform.

Of course, although the effect of these new practices on Microsoft as a company will be hardly negative in the short-term, they do have significant consumer benefit. For example, the release of code, as well as the allowance for other software to work on the Window’s operating system will make it possible for consumers to buy non-Microsoft software components if they wish (which not only fosters innovation and competition, but may also reduce prices for consumers both short- and long-term), as well as allow computer manufacturers to include different, more customized, or cheaper software packages with the bundling of their machines. Although these remedies are clearly not as harmful to the company as a forced break-up, it is clear that opening certain portions of its code to other companies can significantly loosen its monopolistic hold on the market.

In conclusion, Microsoft has been found to be a monopoly in that it both controls the market share of the operating system market, and it harms consumers by preventing access to other products as well as reducing innovation and competition. Although one cannot make a good case for asserting that any one component in and of itself constitutes a monopolistic practice (see, for example how the operating system’s prices have remained low in the following graphs), as part of a greater plan to dominate the market, there certainly is a solid case. Although the penalty for Microsoft as a monopoly is hardly extreme, it will certainly serve as a model to both avoid, and watch out for in the future.

Table retrieved at

End Notes

Bill Gates, the Economist, 6/13/98

Ralph Nader and James Love, ComputerWorld, 11/9/98

Economics Resource Center. “Policy Debate. Is Microsoft a Monopoly?

Economics Resource Center. “Policy Debate. Is Microsoft a Monopoly?

McKenzie, Richard. “Microsoft: The Monopoly Mantra.” zdnet. “Microsoft to Reveal Windows Code.

Works Cited “Microsoft Anti-trust Case.” 2004. Web site. Retrieved on September 30, 2004 “The Monopoly Question.” 2004. Retrieved on September 30, 2004

Economics Resource Center. “Policy Debate. Is Microsoft a Monopoly?” Web page. Retrieved on September 30, 2004

Liebowitz, Stan. “Microsoft Monopoly and Consumer Harm. 2001. Retrieved on September 30, 2004

McMurray, David. “Compete, Don’t Delete.” The Economist. 6/13/98

McKenzie, Richard. “Microsoft: The Monopoly Mantra.” 2002. Web page. Retrieved on September 30, 2004

Zdnet. “Microsoft to Reveal Windows Code.” 2002. Retrieved on September 30, 2004

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