Question

If a large firm is found to possess monopoly power, what else is needed to find the firm guilty of monopolization? Why is possessing monopoly power insufficient for illegality? Explain therelevance of the “applications barrier to entry” in the Microsoft case. What srategies did Microsoft employ, according to the Justice Department, to preserve the applications barrier?

Answer 1

Large firm can possess monopoly power by making their products superior in terms of quality or creating a higher market share. But in order to find the firm guilty of monopolization, the firm has to create barriers for entry of the other firms. The barriers can be in the form of preventing other firms to enter in the market or have a monopolized access to natural resources.

A firm can have monopoly in a particular market by creating a superior product or differentiated product compared to competitors. This monopoly cannot be considered as illegal.

Microsoft was able to have a monopoly over operating systems software for IBM-compatible PCs. It used its dominant position in the market to prevent other software developers and other computer makers to install non microsoft browser to run with Microsoft's operating system. As Microsoft has created monopoly using its superior and differentiated product , so Microsoft's monopoly is considered to be legal and is not objectionable.