In today’s world Microsoft Corporation is considered as a monopolistic firm, a firm that does not allow competition in the market or the industry. This paper discusses the techniques, strategies and the method that Microsoft Corporation uses to maintain its standards, top position and monopoly. To eliminate and create monopoly the company creates certain barriers for entry for the companies to enter. These barriers include: economies of scale and scope, product differentiation, brand loyalty, low costs, ownership, legal protection, mergers and acquisitions.
All of these are discussed in the paper with reference to the Microsoft Corporation. Microsoft Corporation Microsoft Corporation is a multinational computer technology company that is involved in the development, manufacturing, supporting and licensing of a wide variety of computer soft wares. It’s headquarter is in Redmond, Washington, USA. The most profitable products of Microsoft include Microsoft Windows operating system and the Microsoft Office Suite. In 2009 Microsoft Corporation was ranked as the third largest company in the world. And today it is considered as one of the largest technological corporations in the world.
Microsoft successfully captured a place in every personal computer by putting at least one of its product in every personal computer. Due to the success and market penetration Bill Gates the founder of Microsoft has become one of the wealthiest and famous businessmen in the world. (Funding Universe, n. d) History: Microsoft Corporation came into existence on April 4, 1975 by the partnership between Bill Gates and Paul Allen. But later Paul Allen resigned and left the company. in the initial years the company had to face hurdles and rough times.
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The company also developed associations with IBM (MS-DOS) and Apple (program for Macintosh) on various occasions and products. With the Associations with IBM and Apple the company survived the difficult times. One major problem that the company had to face, is facing and will have to face in the future is that of piracy of its soft wares and programs. Throughout its history the Company has been the target of criticism, the most famous of the criticism that the company had to face were that of monopoly, anti-competitive strategies and the violation of the anti-trust laws.
(PIE Software Inc, 2001) Vision, Mission and Values at Microsoft: The vision and values at Microsoft is to help people and businesses from all over the world to recognize and realize their full potential and capabilities. The company as a whole and the individuals there value integrity, openness, honesty; constructive criticism, continuous elf-improvement, mutual respect and personal excellence. They are committed to their customers and strategic partners. They take in challenges and fulfill them properly.
They honor their commitment to customers, shareholders, partners and the employees and strive for highest quality. (Microsoft, 2010) Microsoft and Monopolistic Competition Microsoft is criticized all over the world by different organizations, NGOs and Government for its Monopoly in the market. Few points are being discussed below which enlightens why and how Microsoft successfully creates Monopolistic Competition. Barriers to Entry: Barrier to entry is a valuable market concept for an inventor because it protects them from competition in the market.
It is a physical or an intellectual barrier that creates problems and difficulties in entering a market or selling the product in the market. The barriers for entrance in a market are designed in order to stop or block the potential competitors from entering the market. Their purpose is to protect the monopoly of the existing or already present company in the sector or industry. This leads to super normal profit in the log run. (tutor2u, n. d) There are many ways through which companies creates barriers to entry some of them are as follows:
1. Economies of scale and scope:
Economies of scale relate to the phenomena that with the production of more units of a good or service less input cost is incurred at a large scale. On the other hand Economies of scope relate to the phenomena that with the increase in number of different goods produced the total average cost of production decreases. (Bar, 2006) Microsoft enjoys the economies of scale in the industry by producing larger output at lower cost. This is supported by the consumers who are benefited by the low prices.
This has resulted in less competition and has created a barrier to entry for other competitors who have high cost products. But this barrier can easily be overcome by the competitors if they offer superior economic benefits to the customers. For Microsoft’s window program there are alternative programs such as the Apple and Linux. In the same way there could be many other alternatives for the operating systems with only one condition i. e. superior economic benefits. (Armentano, 2000)
2. Product differentiation:
Product differentiation is a strategy used by companies in order to create and exploit differences between their own products and that between the competitors product. These differences provide a competitive advantage if the customers perceive and prefer the product for the difference. It is important for the companies to communicate the difference through advertisements, public relations and sponsorships. (Google docs, n. d) Product differentiation can be achieved from a wide variety of factors which include distinctive products, product quality, reliability, durability, product design and the style.
Microsoft uses the product differentiation strategy based on product distinction. In the year 2001 Microsoft’s Windows XP won the award for “Technical Excellence” . The product of Windows XP, windows kernel that uses a Microsoft operating system is considered as the most stable. Other special features of Windows XP include a new wizard that facilitates the configuration settings on the internet and local net. Windows XP also have firewall software for security. In 2002 Microsoft was raked number three in the Fortune Magazine. (Entrepreneurship zone, 2010)
3. Brand loyalty:
Brand loyalty is the extent of faithfulness of the customers or consumers to repeatedly or continuously purchase a particular brand irrespective of the marketing pressures generated by other competing brands. Microsoft enjoys brand loyalty to a great extent because of the good quality and updated products. Microsoft has customers all over the world who are loyal and satisfied with the services and the products of Microsoft.
4. Lower costs:
Microsoft provides lower costs for its products as compared with that of the competitors. The best example in this regard is Microsoft’s Internet Browser.
Microsoft introduced a high-quality browser in Windows and offered it to the consumers and OEM’s at no extra or explicit rate. This created difficulty and problems for the competitors to compete and gain market share. On the other hand if Microsoft would have launched an expensive or non-functioning Browser it would have made it easy for the competitor to penetrate and gain the market share. The low price and efficiency of the Microsoft’s Internet Browser has enhanced consumer welfare but eliminated competition. The issue has been taken by Judge Jackson as the Violation of Anti trust laws.
(Dominick Armentano, 2000)
Resource ownership is a fundamental barrier to entry in an industry. It is the control and ownership on the crucial inputs used in the production. This limitation in the ownership creates barrier to entry in the industry for others. Microsoft is the giant in the technology industry it doesn’t have many competitors. It is believed that it has monopoly in the market and does not let others enter it control most of the resources needed in the production, design and manufacturing of the soft wares and programs.
6. Legal protection:
Legal restrictions that prevent firms from entering and competing are also considered as the barriers to entry. These regulatory exclusions can restrain trade and can also harm the consumers. The legal barriers eliminate competition and give the consumer only few choices and less welfare and benefit. The legal barriers also protect the profits and the inefficiencies of the already present or the existing suppliers and for this purpose they exist. (Dominick Armentano, 2000)
Patents, copyrights and trademark are the names given to the legal protection provided to a company. These also forms barrier to entry for other companies. Microsoft Corporation also has many patents, copy rights and trademarks in the market that provides it legal protection and because of which it enjoys monopoly in the industry. It implies that no one can copy any of the matter or make ant thing like Microsoft other wise they will have to face legal actions.
7. Mergers and acquisitions:
Mergers and Acquisitions is a technique used by companies to eliminate or reduce competition.
Microsoft has acquires 128 companies, made 24 divestments and purchased stakes in 60 companies. 99 companies that were acquired were US based companies. Following is a list of the most prominent and major Acquisitions done by the Microsoft Corporation:
• On June 29, 1987 Microsoft Acquired Forethought.
• On December 31, 1997, Microsoft acquired Hotmail. It was the largest acquisition of all times.
• On January 7, 2000 it acquired a Seattle based Visio Corporation.
• On July 12, 2002 Microsoft purchased Navision.
• On August 13, 2007 it acquired aQuantative an advertising Agency.
• On April 25, 2008 Microsoft acquired the Norwegian enterprise a search company and Fast search and transfer (Hasen Fay, 2000) These were only a few of the acquisitions done by the Microsoft Company. Besides these there are a lot of small acquisition done by the corporation. from the year 1087 till 2005 the corporation acquired more than 10 companies. In the year 2006 it acquired 18 firms including Onflio, Lionhead Studios, Massive Incorporated, ProClarity, Winternal Softwares and Colloquis.
Not just that the corporation made some acquistuions worth 1 billion dollars which includes the acquisition of aQuantive, Fast Search & Transfer, Navision, and Visio Corporation. Profit Maximization under Monopoly: In a monopolistic firm the profit is maximized where MR=MC i. e. where the marginal revenue is equal to the marginal cost. At this situation the monopolist firm the maximum price the consumers are willing to pay. The monopolist makes profit at the point where the price exceeds the average total cost. The market power of the monopolistic company allows them to above normal profit.
Microsoft Corporation is a prominent and classic example of monopoly. It does not let the competition stay in the industry. As soon as it identifies any competition it acquires the competitor and makes it a part of the company. The aim of the company is to maximize the profit and sell the products to consumers all over the world. It sets the price as high as the consumers can pay and afford to pay. Conclusion: Microsoft Corporation is a multinational corporation that is famous all over the world for its excellence in the field and the introduction of new soft wares and technologies.
In spite of this it has always been the center of criticism by different Agencies, organizations and government for monopoly and the violation of the Anti-trust laws. It is a proven fact that Microsoft has created monopoly in the industry and does not let the competitor stay in the market. Microsoft works on the strategies that creates the barrier to entry for the competition, these barriers include: economies of scale and scope, product differentiation, brand loyalty, low costs, ownership, legal protection, mergers and acquisitions.
All these barriers as discussed above in detail with reference to the Microsoft Corporation. Today it has become very important to promote competition and end the monopoly in this respect a major role has to be played from the Government side. It has become very important that the government should take the initiative by removing the legal barriers to entry and exchange in the market. In this way the public (consumers) will also be benefited they will get a wide variety of products at minimum price because of competition. Monopoly is an unhealthy phenomenon and must be eliminated as soon as possible.
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