Hi I found your blog really useful and it helped improve my grades! So thanks alot! You're doing a really great job here:)
I would like to ask you a question,
What are the merits and demerits of breaking up a monopoly? i.e Microsoft
Would really appreciate it if you could give me some help here.
Looking forward to ur response:)
Hmm... why does this question sound so familiar? Is it because I perhaps set this exact question for one of my students today?... :)
Anyway, it is of course an interesting question.
At one stage the US Justice department had nearly succeeded in getting Microsoft broken up into 3 smaller companies. They argued that Microsoft had abused its monopoly power to engage in illegal activities.
These illegal activities included:
- Combining Internet Explorer browser with the Windows operating system - This had violated anti-trust laws.
- Note this is an example of a monopoly using its power in one area to gain market share in another. Because it had a monopoly in operating systems. It was able to use this to gain a monopoly for web browsers. It is a kind of vertical integration. - Controlling different stages of production. New web browsers were at a disadvantage because it was too much effort to change from the default web browser.
- Microsoft breakup repealed at BBC
Points to Consider
- Is the monopoly abusing its market power? - setting higher prices being inefficient?
- To what extent does Microsoft need Profit for Research and development. To what extent do Microsoft benefit from economies of scale?
- Do these benefits justify the higher prices and inefficiency associated with Monopoly power.
- Is Microsoft inefficient because it is a monopoly, or is it a monopoly because it is innovative and efficient?
- Price of operating systems is coming down in real terms. Internet provides greater competition over time. e.g. growth of Mozilla Browser
- Are there alternatives to breaking up a monopoly. For example, the government could regulate the monopoly like Privatised water companies.