Question

Take Microsoft Corporation and Technology Market into consideration and discuss which model of market structure you think would be most appropriate to describe that market. (ie. Perfect competition, monopolistic competition, oligopoly, monopoly.)

you might want to consider, if relevant in your case, factors such as the nature of the product, factors about the production such as whether or not there are likely to be economies of scale, the number of competitors, the degree of market power, how firms compete, and outcomes such as prices, markups, profits and firm entry/exit.

Please ensure the following criteria are met:
1. Ability to relate the characteristics/assumptions of the models to the real world market

2. Compare the outcomes in the market to the models

3. Compare and contrast between all potentially relevant models

4. Correct usage and understanding of relevant models

Answer 1

I consider Microsoft Corporation faces Monopolistic competition in the market. Although in its some of the product it capture most of the market share but faces competition from few of the major players in the market like Apple, Google etc.   

(It is not considered in perfect competition because it is not developing identical product, it is not having monopoly and have various competitors, although it dominates market in some products. It is also NOT considered as oligopoly market structure because it does not have a feature of interdependence).

Characteristics of Monopolistic competition

1. Nature of the product

Microsoft Corporation basically deals with the development of software. It has certain leading products like ‘windows operating system’ but some other competitor are also available in market like android, linux, macOS etc.

It also deals with hardware that includes tablet.

2. Product Differentiation:

All the products developed by Microsoft Corporation have slightly different features as compare to other companies. Like Andriod of Google and macOs from Apple are different from windows operating system.

3. Large number of buyers and sellers:

In Monopolistic competition, there are large numbers of buyers and sellers. All household who use computer are the buyers of operating system (like windows of Microsoft product). There are more than 30 companies that make operating systems. Similarly, other companies (firms) also make different software according to the requirement of the buyers.

4. Free Entry and Exit:

The firms are allowed to enter into the market and exit from the market.

5. Selling Cost:

Every firm advertises to promote its product. Lot of advertisements are seen on television about windows 10.

6. Elastic demand.

As new technologies are introduced, the demand of the product increases.

7. Profits:

As firm starts earning supernormal profits, more firms enters into the market and brings down the profit into normal profit.