Econ: Microsoft Exploits Power

Title: Three Ways Microsoft Exploits Power

Class: ECO-202

Microsoft took advantage of its market power in three important ways. First Microsoft violated the Sherman Act by manipulating competition to maintain its monopoly, Second Microsoft illegally used tie-in to sustain their dominating place in the market and Finally Microsoft inhibited technological advances altering consumer’s choice.

Microsoft used strategic behavior to influence the market environment. The first approach Microsoft used was “exclusive dealings “this is a special deal made with the distributor to only sell his product and forbids the use of its rival product. (Wikipedia) Microsoft entered in an exclusive deal with OEM (original equipment manufacturer) manufactures to only sell computers with Windows Operating systems already installed. (D. Carlton P.4) The marginal cost was $0 for the OEM this instantly created incentive for OEM to only use Windows. Microsoft made the same exclusive deals with other OEMs such as Compaq provided they used IE and not Netscape. Also Microsoft Provided Compaq with discounts on Windows. (D.Carlton P.4) These types of business dealings are not only unethical but also completely illegal in the United States creating barriers to competitors trying to enter market. Exclusive dealings violate the “Fair Trading Act 1986 and Sherman Anti-Trust Act 1980. (Wiki, Feb28 & Linfo, org)

Microsoft second approach to maintain its monopoly is called the “Embrace and Extend.”(D.Carlton P.4) Which later U.S. Justice Dept. found that the real strategy was called; “Embrace Extend and Extinguish used internally toward its competitors such as Netscape.”(Wikipedia 9.10)Microsoft became increasingly worried about its competitors such as Netscape. Why? Because Netscape’s browser could run off any operating system and could potentially make Windows obsolete. Microsoft decides to create IE (Internet Explorer) and bundles (tie-in) with Windows at no extra charge. Tie-ins used...