Question

Your assignment is to research just how seriously markets take antitrust allegations. Research the Microsoft stock price between the beginning of the year 2000 (December 1999) and the end of the year December 2001.

Answer 1

First, lets see what are Antitrust laws. Antitrust laws are laws against monopoly power and unfair practices. They are there to make sure that the market landscape remains competitive and no big company is using its power to indulge in unfair practices. They prohibit anti market activities such as price fixing, mergers that will increase monopoly power drastically etc.

In 1998, Microsoft was hit with antitrst laws from the Federal government and government of 20 states. The allegations were that MS was using its power in the PC market to stop OEMs and users to uninstall Internet Explorer and thus was preventing Netscape and other browsers to have a fair market access.

On Novermber 5, 1999 the court ordered that MS indeed used its dominance to further its monopoly and took actions to make sure that the monopolly stayed.

This led to severe drop in MS share prices. As shown in the chart below, MS share gradually dropped more than half.

This shows that markets take antitrust allegations extremely seriously. So much so that many people lose complete faith in the company there is a big sell-off of stocks. This results in the company's future being affected greatly, even one as big and dominant as Microsoft.