Antitrust Practices and Market Power

Antitrust Practices and Market Power

It is important to realize the reason that Microsoft was investigated for possibly violating antitrust laws at the turn of the millennium. The company had established something of a natural monopoly of the software market (which is distinct from a government monopoly), and was leveraging its considerable market power to systematically eliminate its competition. It is legal to establish a monopoly in any given industry; yet it is illegal to "use certain practices that have no commercial justification in an effort to further entrench the monopoly" (Hazlett et al., 2000, p. 46). Microsoft was not charged with price fixing, and instead was investigated due to activity such as its penchant for fostering exclusive contracts and for withholding its operating system from certain competitors (Hazlett et al., 2000, p. 46).

Microsoft was investigated specifically under the Sherman Antitrust Act, particularly the first two sections which state that restraining trade and monopolizing trade internationally or between U.S. states is illegal (Haw, 2011, p. 1247). By erecting a monopoly market structure (which is different from an oligopoly market structure), Microsoft was able to erect barriers to entry into the software and certain facets of the middleware market. It also exacted costs to competitors by punishing them with monopoly pricing, since it was the price maker, if they did not act in collusion with the software giant. Doing so enabled Microsoft to reap economic profits and an economics of scale that reinforced its advantage while eliminating the means for competitors to contend with it.