The Problem of Monopolies

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Monopolies develop according to the definite monopoly market structure which is discussed by economists as opposite to the competitive market because only one seller controls the industry.

A company can be described as a pure monopoly when it is a single seller of certain products or services within the market, when it is a price maker, the barriers to entry are high, and there are no close substitutes for products. The development of a monopoly within the industry creates conditions which can characterize the imperfect competition based on the absence of the other sellers. Moreover, the lack of the substitutes is observed, and the company becomes a monopoly within the market (McConnell, Brue, & Flynn, 2012).

Microsoft is the leading producer of operating systems for personal computers and different types of software in the USA. This leading position is often discussed as an attempt to receive the status of a monopoly within the market in order to gain the high economic profits typical for monopolies oriented to innovations. The recent situation in the market of the computer software is rather controversial. It can be explained basing on the idea that Microsoft tried to gain the market power several years ago.

Microsoft took the leading position within the industry in the 1990s when the most successful variants of the Windows operating system for personal computers were worked out. Moreover, the company presented the effective applications software, and the majority of the personal computers’ users began to utilize the Windows operating system.

Microsoft Office and Outlook also became popular with the users due to the fact the possible alternatives could not be discussed as the appropriate substitutes for the products and services provided by Microsoft. For instance, the operating system Microsoft Windows 95 was effectively utilized by over than 80% users in the USA because their computers were Intel based (Bittlingmayer & Hazlett, 2000).

Thus, the situation was discussed by the government as critical because of Microsoft’s possibility to develop into the monopoly with maintaining the control over the market. Microsoft had to change strategies of presenting the products and attracting the buyers after the investigations conducted in 1994 and 1997 in order to address the government’s requirements.

The advantages of Microsoft are in the fact the company regularly presents the technologically innovative products which have no substitutes within the market because of their high quality and originality. From this point, Microsoft’s strategy is based on the active usage of the technological development’s results.

Moreover, the company is regulated with references to the effective strategic marketing techniques in order to attract more customers (Bittlingmayer & Hazlett, 2000). According to these points, Microsoft supports its leading position and contributes to developing the controversial question of monopolization of the market. Thus, the leading position of Microsoft depends on the high standards and quality of the products.

The market occupied by the company is so expanded that there are significant barriers to entry which are the company’s ownership, peculiarities of pricing, and legal aspects. As a result, customers have no access to any relevant alternative products (McConnell, Brue, & Flynn, 2012). Today, the activity of Microsoft in developing the operating systems should be discussed with references to such competitors as the producers of iOS for Apple and Linux Operating System.

Limiting the possibilities for the competitors’ entries into the market, monopolies control the industry and develop monopoly pricing, maximizing the profits. Moreover, these processes are associated with the factor of a downward sloping demand curve which is typical for monopolies.

From this point, monopolies are not discussed by economists as the effective way for a company to develop within the industry (Kahn, 1999; Krugman & Wells, 2009). Nevertheless, not all the monopolies are bad. For instance, a natural monopoly does not influence the progress of the market negatively because it depends on the system of the fixed costs. Moreover, not all the monopolies are bad because of the definite support provided by the government.

That is why, government monopolies can be discussed as good monopolies or legal monopolies. However, the government can regulate and control not many monopolies. The U.S. Postal Service is the legal monopoly developed in the country because the activity of the company is controlled by the government, and the specific functions can be realized only by the U.S. Postal Service (Krugman & Wells, 2009).

It is possible to conclude that monopolies challenge the principle of the perfect competition and can be discussed as the negative factor for the industry and market’s development. Nevertheless, such types of monopolies as natural monopolies based on the large economies of scale and constant marginal costs which can be less than average ones and legal monopolies which are characterized by the government’s control should not be discussed as absolutely negative structures because they develop according to the specific principles.

Economists agree that the main disadvantages of monopolies are associated with the characteristics of pure monopolies when only one company is a seller within the market with the possibilities to control it and provide the barriers to entry. Furthermore, the monopoly market structure provokes the growth of prices which are often higher than the prices within the competitive markets.

References

Bittlingmayer, G., & Hazlett, T. W. (2000). DOS Kapital: Has antitrust action against Microsoft created value in the computer industry? Journal of Financial Economics, 55, 329-359.

Kahn, A. E. (1999). The economics of regulation: Principles and institutions. USA: The MIT Press.

Krugman, P., & Wells, R. (2009). Economics. USA: Worth Publishers.

McConnell, C. R., Brue, S. L., & Flynn, S. M. (2012). Economics. USA: McGraw-Hill.

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The Problem of Monopolies

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