Financial gains

The reason for the European commission’s demand was substantiated by its findings on how Microsoft had abused its monopoly of PC operating systems. Microsoft had abused its monopoly of PC operating systems in two ways: Firstly it deliberately restricted the inter-operatibility between windows PCs and Non Microsoft work group servers (in this way it tried to monopolize the server operating systems market) and secondly by tying its windows media player with its ubiquitous operating system (as Microsoft was facing competition in the media players market).

WHY DID MICROSOFT TRY TO MONOPOLIZE THE SERVER MARKET? Was it because of economic incentives? Microsoft was a dominant player in the PC operating systems market. By limiting the inter-operatibility of the windows PCs with non windows servers, Microsoft would in turn stand to lose value for its PC operating systems (A PC which would be able to connect to a wide variety of servers is more valuable than the one that could connect only with Microsoft servers).

Since it had a monopoly in the PC market, it could have even provided proper inter-operatibility between the windows PCs and non windows servers. This could have resulted in an increased value for the windows PCs and Microsoft could have charged a higher price for its PC operating system for this value addition. This shows that Microsoft lost financially for the purpose of attaining monopoly in the server operating system market.

Microsoft was still happy because the loss it had incurred is negligible compared to the loss incurred by its competitors in the server operating systems market. When there is no compatibility between windows PCs and non windows servers, the servers are more likely to switch to Windows as a major chunk (around 95%) of the PCs operate on windows. Then why did Microsoft try to attain monopoly in the server market in spite of not being able to get financial gains? May be it was looking at long run financial incentives by monopolizing the server market.

But there is more to it than that. Although in the short run, Microsoft’s primary market (PC operating systems) was protected with high barriers to entry as discussed earlier; in the long run it had a potential threat in the software applications market. With the growth of the internet and with the increasing use of cross platform server technologies, more and more applications were being written that were platform independent i. e. to say that these applications could run on any operating system with the same compatibility.

Many of the software applications such as word processors, spreadsheets etc… that were provided by Microsoft could be made available on web servers. These would have wider acceptance in the market than the Microsoft applications as they would be platform independent and they could work on any operating system. Microsoft might have foreseen a platform based on server operating system which could have become a potential competitor for Windows operating system. Thus it might have adopted the strategy of monopolizing the server market (by sacrificing its profits in short run).

One more incentive for Microsoft which had a monopoly in PC market to dominate its complimentary market (server operating systems market) is that it could get the ability to price discriminate. Microsoft has a wide variety of customers who have huge differences in their consumer surplus. A larger firm is less sensitive to price and raising the price to a certain extent does not affect such a firm’s purchasing of Microsoft products. However, a smaller firm would be more sensitive to price and Microsoft could not charge a higher price from such firms.

If Microsoft tries to charge higher price to large firm and lesser price to smaller firm, the large firm can always pretend to be a smaller firm. However if Microsoft has a monopoly in the complementary market, it could exploit the consumer surplus of the large firms who would be needing the server operating system as need for these products by the smaller firms is not as much as compared to the larger ones. Hence Microsoft tried to monopolize the market for server operating systems by using its dominant position in the PC operating systems.

MICROSOFT’S TYING UP OF WINDOWS MEDIA PLAYER WITH WINDOWS OPERATING SYSTEM Microsoft was accused for tying up of its Windows media player which was facing competition in the media player market with it ubiquitous Windows operating system. Microsoft was providing this media player for free with its operating system. This is an anti competitive practice and it could lead to a variety of consequences. When Microsoft is offering its media player for free along with its operating system, the PC users don’t tend to go for the purchase of other media players.

This affects the sales of the other media player vendors in the market. Relatively low incentives in the commercial media player market due to reduced demand for the players (as Microsoft is offering it for free) would lead to reduced R&D in this field. This would in the long run hinder the production of improved quality of media players. This could force the customers to use Windows media player on windows operating system. In the long run, the market for media players might perish as it had happened in the case of markets for disk defragmenters and disk compression software applications.

Alternatively, many firms which are into the development of media players might experience losses and may have to shut down as it had happened in the case of Netscape navigator. In 2007, Opera software (manufacturer of opera web browser) filed an antitrust complaint with European Union against Microsoft. And recently Mitchell Baker (the chair person of Mozilla foundation) announced that Mozilla (a competitor for opera and Internet explorer in the browser market) supports the EU antitrust investigation of Microsoft which was based on a complaint from Opera.

“I’ve been involved in building and shipping web browsers continuously since before Microsoft started developing IE, and the damage Microsoft has done to competition, innovation, and the pace of the web development itself is both glaring and ongoing. There are separate questions of whether there is a good remedy, and what that remedy might be. But questions regarding an appropriate remedy do not change the essential fact. Microsoft’s business practices have fundamentally diminished (in fact, came very close to eliminating) competition, choice and innovation in how people access the Internet”.

(Baker, Mitchell) CONCLUSION By analyzing the antitrust case of United States v Microsoft and the European commission’s case against Microsoft Corporation, we could see how Microsoft took advantage of its competitive position in the operating system market to dominate the market and monopolize not only the operating system market, but also the other secondary markets such as the server operating systems market, web browsers market and the media players market.

Microsoft’s monopoly in the operating systems market through its windows family of operating systems has made many markets unattractive and some of them had to perish. Works Cited “Antitrust Settlement Fact Sheet: A brief summary of the settlements Microsoft has reached in the antitrust case brought by the Department of Justice and some state governments, as well as a number of private class-action lawsuits. ” Microsoft Corporation. 17 Jan. 2007. Microsoft Corporation.

12 Apr. 2009 <http://www. microsoft. com/presspass/legal/01-17-06AntitrustFS. mspx>. Baker, Mitchell. Interview. Http://my. opera. com/. 11 Feb. 2009. 13 Apr. 2009 <http://my. opera. com/haavard/blog/show. dml/2972785>. Economides, Nicholas. “The Microsoft Antitrust Case. ” Journal of Industry, Competition and Trade: From Theory to Policy (2001). “Microsoft -. ” Wikipedia, the free encyclopedia. Wikipedia. 12 Apr. 2009 <http://en. wikipedia. org/wiki/Microsoft>.