Question

As of mid 2015, approximately 86% of personal computer operating systems were sold by Microsoft (Vista and multiple versions of Windows). Per your books definition of a monopolist, the existence of other operating systems make Microsoft not technically a monopolist. However, this exceptionally large share of sales in the personal computer operating system market clearly establishes Microsoft as the dominant firm in that market. Discuss why you think that Microsoft's current share of sales in the personal computer operating systems market is (or is not) large enough for Microsoft to set prices for operating system software as a monopolist? Also, how big of a share do you think a firm needs to have of a market before it can set prices as if it was a monopolist? Lastly, what do you think the makers of other personal computer operating systems could do to gain a larger share of sales in that market or cause Microsoft to lower the price of the personal computer operating systems that it sells?

Answer 1

Microsoft can be considered a monopoly (although it is not by strict definition), since its Windows product is so popular that Microsoft is able to set its price at will. It is not really about market share, but about market power. For example, Google is also HUGE but it has competition.

In my opinion, the real problem with Microsoft is that is has used its market power to halter competition. Who will invest in a software company that will try to compete with Windows, if only PC's with Windows installed are sold? The answer is to sell different computers.

Finally after many years competition arrived, but in a different type of computer devices: smartphones and tablets. Smartphones may technically be considered telephones, but they are very powerful mini computers. Before the iPhone existed (and later Android devices), Microsoft had no real competition. Now PC sales are constantly decreasing while everyone has at least one smartphone and/or tablet (many have both).