Monopoly Power in the Computer Industry” A requirement for pure

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					“ Monopoly Power in the Computer Industry”

         A requirement for pure competition is the absence of significant barriers to entry
into the market by new firms. Monopoly, correspondingly, arises because of barriers to
entry. A monopoly firm is the only seller of a good or service with no close substitutes.
The market in which the monopoly firm operates is called a monopoly market. The
definition of a monopoly firm or market may seem precise, but in the real world, when
we try to decide which markets are monopolies and which are not, things aren’t always so
clear. How close must a substitute for a product be before we no longer consider a firm
 that makes the product to be a monopoly?
         Two forces dominated developments in the computer industry in 1995- the arrival
of Microsoft Corp.’s new Windows 95 personal computer operating system and the
overnight authority of the Internet and the World Wide Web, a subset of the Internet for
multimedia use. Events in 1995 drew so much attention to both Windows and the Web
that by year’s end the computer mouse had become almost as well known to the world’s
population at large as the television set remote control. Both Windows 95 and the Web
were mileposts on what clearly emerged during the year as the road toward something
analysts started calling “convergence.” The term pointed toward the coming integration
 of all forms of information from simple text to moving video as digital data that could be
processed, stored, and manipulated by computers using a graphic interface. In May the
US Justice Department filed an antitrust suit against Microsoft, alleging that Microsoft
had used monopoly power to restrict competition. Based on the contention that Microsoft
improperly sought to dominate the market for Internet browser software-to the
disadvantage of Netscape, maker of the most popular World Wide Web browser- the case
 grew to include allegations of broader anti-competitive actions to dominate the Internet
software market. The broadened suit alleged that Microsoft, which in September passed
General Electric to attain the highest market value in the nation, had used its influence as
the maker of the Windows operating system for PC’s to restrict competition. Among
the actions at issue was the government’s contention that Microsoft offered AOL, the
 largest on-line service provider, a prized spot for its software on the Windows “desktop”
in exchange for AOL’s decision to use Microsoft’s Internet Explorer as its main web
browser. The Federal suit was joined by twenty states and after some delay went to trial
in October before District Court Judge Thomas P. Jackson. Microsoft responded that the
Justice Departments broadening of the case reflects desperation and that, whereas the
 company undeniably was a powerful player in the software market, it had done nothing
illegal. It also asserted that, rather than trying to hurt competition by combining its
Internet Explorer with Windows, as the government claimed, Microsoft had combined
the products to improve Windows. Government lawyers introduced testimony by some
of Microsoft’s competitors and partners, internal memos and electronic mail messages,
and excerpts from a videotaped deposition by Microsoft’s founder and chairman, Bill
         In late November AOL announced two startling deals: a $4.2 billion agreement to
acquire Netscape and an alliance with Sun Microsystems, which had filed a separate suit
against Microsoft over the alleged misuse of Sun’s Java programming language,
Government lawyers denied that the AOL-Netscape-Sun deal weakened their arguments,
and the case was still pending at year’s end. A lower profile antitrust suit was filed by
the Federal Trade Commission in June against computer chip giant Intel Corporation.
That suit accused Intel of using monopolistic practices when it stopped or threatened to
 providing vital information about Intel chips to three computer manufactures that
declined to license key patents to Intel. Intel maintained that it had the right to act as it
did. A trial on that suit was set for February 1999. Apple Computer staged an amazing
recovery that became apparent in January when the firm returned to profitability and
continued during the year with the introduction of successful new computer models, such
as the Power Macintosh G3 and the iMac consumer computer. Apple introduced the
iMac in August and promoted it on the basis of its ease of use and obvious physical
 from other machines. By early in the Christmas season, Apple’s iMac had become the
top-selling PC in retail stores. During 1998 Apple turned doubters into believers as it
consistently remained profitable, but the company remained a relatively small player in
the industry, where its machines were overshadowed by computers that used Windows.
In the biggest acquisition to date in the computer industry, Compaq announced in January
that it would buy DEC for $9.6 billion in cash and stock. The purchase represented a sea
change in the computer industry, since it entailed the takeover of an aging maker of
 minicomputers, a 1970s technology, by the largest manufacture of PC’s, an industry that
began only in the 1980’s. Once the world’s third largest computer maker, DEC had lost
billions of dollars and half its employees since the late 1980’s. The purchase was
expected to make Compaq the world’s second largest computer manufacturer, behind
IBM. While DEC had been financially ill as interest in its proprietary computers and
software waned, it
 still provided a doorway through which Compaq, still basically a PC manufacture, could
enter the markets for higher-end computer workstations and computer networks. In 1997
Compaq had paid $2.8 billion for Tandem Computers, which manufactured computers
used by banks and telecommunications firms. Consolidation also occurred in the software
industry. Mattel Inc., known primarily for its toys but also as a player in the
 software business, said that it would purchase educational software firm The Learning
Company., Inc,. based in Massachusetts, in an exchange of stock valued at about $3.8
billion. The Learning Company had been in the world’s second largest consumer
software firm, after Microsoft. The acquisition followed The Learning Company’s
agreement earlier in the year to buy Broderbund Software, another entertainment firm, for
about $420 million in stock.
         So in conclusion, as you can see, the computer industry has blown up through
theyears. There are many different companies that offer many products and services to
fit to the customers needs. But who can say which ones are a monopoly and which ones
are not. How close do the substitutes for products have to be before they, the company,
are considered to be a monopoly? We all as individuals have different likes and dislikes,
so we can agree to disagree about what is a substitute for a product. So it makes sense to
view monopoly as a spectrum, rather than a strict category.


monopoly power computer industry requirement pure competition absence significant
barriers entry into market firms monopoly correspondingly arises because barriers entry
monopoly firm only seller good service with close substitutes market which firm operates
called market definition firm seem precise real world when decide which markets
monopolies which things aren always clear close must substitute product before longer
consider that makes product forces dominated developments computer industry arrival
microsoft corp windows personal computer operating system overnight authority internet
world wide subset internet multimedia events drew much attention both windows that
year mouse become almost well known world population large television remote control
both windows were mileposts what clearly emerged during year road toward something
analysts started calling convergence term pointed toward coming integration forms
information from simple text moving video digital data that could processed stored
manipulated computers using graphic interface justice department filed antitrust suit
against microsoft alleging microsoft used power restrict competition based contention
improperly sought dominate internet browser software disadvantage netscape maker most
popular wide browser case grew include allegations broader anti competitive actions
dominate software broadened suit alleged september passed general electric attain highest
value nation used influence maker operating system restrict competition among actions
issue government contention offered largest line service provider prized spot software
desktop exchange decision explorer main browser federal suit joined twenty states after
some delay went trial october before district court judge thomas jackson responded
justice departments broadening case reflects desperation whereas company undeniably
powerful player done nothing illegal also asserted rather than trying hurt combining
explorer with government claimed combined products improve government lawyers
introduced testimony some competitors partners internal memos electronic mail messages
excerpts from videotaped deposition founder chairman bill gates late november
announced startling deals billion agreement acquire netscape alliance with microsystems
filed separate against over alleged misuse java programming language lawyers denied
netscape deal weakened their arguments case still pending year lower profile antitrust
filed federal trade commission june against chip giant intel corporation accused intel
using monopolistic practices when stopped threatened stop providing vital information
about intel chips three manufactures declined license patents maintained right trial
february apple staged amazing recovery became apparent january when returned
profitability continued during introduction successful models such power macintosh imac
consumer apple introduced imac august promoted basis ease obvious physical differences
from other machines early christmas season apple imac become selling retail stores
during turned doubters into believers consistently remained profitable company remained
relatively small player industry where machines were overshadowed computers used
biggest acquisition date compaq announced january would billion cash stock purchase
represented change since entailed takeover aging maker minicomputers technology
largest manufacture began only once third largest lost billions dollars half employees
since late purchase expected make compaq second manufacturer behind while been
financially interest proprietary computers waned still provided doorway through compaq
still basically manufacture could enter markets higher workstations networks paid billion
tandem manufactured banks telecommunications firms consolidation also occurred mattel
known primarily toys also player entertainment business said would purchase educational
learning company based massachusetts exchange stock valued about learning been
second consumer after acquisition followed learning agreement earlier broderbund
another entertainment about million stock conclusion blown through theyears there many
different companies offer many products services customers needs ones ones close
substitutes products have before they considered individuals have different likes dislikes
agree disagree what substitute product makes sense view spectrum rather than strict

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