A lot of people have agreed that Microsoft Corporation is a monopoly since it holds a huge percentage of the market share. A company is said to be monopolistic if it has direct influence on a good or service.
In this case, the company is able to make conditions on the access and right of use of that particular product. In short, a monopolistic company does not receive competition on its products.
Microsoft’s products occupy about 90% of the market. Also, the company has a habit of pricing their product higher than other similar products from other companies. Other than that, it forces other companies to conform to their set of laws.
Monopolistic companies make supernormal profits because they are able to set high prices on their products. A normal market will stabilize itself at a point where the demand of a product equals its supply.
In the graphs below, market equilibrium is at P comp and Q1. In such a competitive market Price = MC. If the market is under a monopolistic company, prices will be set at P mon and output at Q2, which is higher than competitive price.
The monopolistic firm can afford to raise the price thereby curbing the output and eventually lessen financial wellbeing. From the graph, the increase in price up to P mon will decrease customer superfluous (see figure 1). The decrease in buyer wellbeing is a clean move to the manufacturer via high profits.
Figure 1
A monopolistic company protects its dominance by introducing entry barriers to put off competition. One way in which Microsoft Company retains its dominance is through product bundling.
Product bundling is where a company offers several products as one product. For example, if you want to purchase a word processor from Microsoft, you have to buy other products such as spreadsheet; these products are not sold on their own as a single product.
Tying products on the other hand, is forcing customers to purchase a certain undesired product so as to purchase the desired product. For example, when purchasing the Windows 98 OS, the product is accompanied with Internet Explorer and Windows Media Player. A customer might not need the extra products but he has no choice but to purchase the accompanying products.
Since there are unfair practices from a monopolistic company, there needs to be some sort of regulation. One major body that does this is the European Union.
The EU regulates the market by setting rules that will ensure that all parties are not discriminated and fair trade is practiced. Other than that, this body has other functions too.
They include; acting as a European representative, determining which country will join the European Union, improving security among its citizens and formulating laws that are meant to protect its members. All the above functions of the European Union are meant to ensure that the citizens of Europe are not discriminated by other countries and companies within and outside Europe.
Practices such as product bundling usually poses great burden to the consumers and are unfair to other firms in the same industry. Thus, there is need for regulation from the governments.
Intervention is done to avoid market breakdown at the same time maintaining the nature of the market financial system. This is done by controlling the way resources flow to the customers by altering tariffs and financial support. In most countries, regulation is usually done by their respective governments.
However, the European Union has agencies such as International Energy Agency, Telecommunications, Agency and the Regulatory body of Commercial Banks also act as market regulators.
The EU has formulated a competition guiding principle to guarantee healthy competition in the market. In 2010, it was found that 62% of all European internet users were using Microsoft Internet Explorer.
In the deal they signed with the EU to reduce this dominance, Microsoft was asked to give its users a choice on the type of browser they would wish to have. A window will pop up if the user only uses Microsoft Internet Explorer to allow them to pick any among twelve browsers they would wish to install.
Some of the browsers that will appear on the pop up window include Mozilla Firefox, Safari, Opera Mini and Google Chrome. This was an EU initiative in which the monopolistic company was forced to offer its customer an alternative product of a different company.
When it comes to export and import, the foreign trade is affected by the international economic incorporation. These effects are as a result of the price, fee of exchanging foreign currency and international trading policies.
A computer retailer buying his products from USA must be very watchful on the exchange rates between the US dollar and the sterling pound. If the sterling pound rises, or its value appreciates compared to the US dollar, it means that the retailer will be able to buy his products cheaper than earlier.
In turn, he will purchase more meaning more sales and more profits. If the reverse happens, that is the value of the pound depreciates, the purchasing power of his money will reduce.
Thus, he will only be able to purchase fewer products than earlier translating to low profits or even losses. When the sterling pound is strong, the UK’s industries will be able to purchase raw materials at a cheaper price.
In the long run, products will be affordable to the majority; thereby improving the economy. If the pound is weak, the country’s purchasing power will be low meaning that most commodities will be expensive. This will make the consumers to spend less and that will be bad for the economy.