Description
Microsoft Corporation is an American multinational corporatthat develops, manufactures, licenses, supports and sells computer software, consumer electronics and personal computers and services. Its best known software products are the Microsoft Windows line of operating systems, Microsoft Office office suite, and Internet Explorer web browser.
High Technology Industries:
Competitive Issues and the
Microsoft Case
Salient structural features of
high technology industries
•
Product and price differentiation
•
Bundling
•
Switching costs and lock-in
•
Supply-side economies of scale
•
Demand-side economies of scale
•
Standards
•
You cannot purchase Excel or PowerPoint as stand alone
applications—you must purchase icrosoft !ffice"
•
!perating systems #undled with internet #rowser
software"
The practice of selling two or more
distinct goods together for a single
price.
Switching costs and “lock-in
Switching from $indows to
%inux means changing
document formats and
software applications" $e
will ha&e to train employees
to use the new platform"
!conomies of scale
'
(
)uantity*time
+&erage ,ost
anufacture of
software in&ol&es
su#stantial
de&elopment costs
#ut negligi#le
marginal cost
"etwork effects
+ good exhi#its network effects if the demand for
the goods depends on how many other people
purchase it"
Examples- fax machines.
picture phones. e-mail"
Si/e of network
$illingness
to pay
Demand cur&e
Supply cur&e
0etwork Effects and Demand
'
1,ritical mass2
area
03
$illingness to
pay #egins to
diminish at
network si/e 03
due to 1network
congestion2
effects"
The Microsoft case
icrosoft ,orporation &" 4"S" 56' 4"S" 76'7 89''':
;he +ntitrust Di&ision of
the D!< won Sherman
section 7 and section 9
con&ictions against the
software giant"
#cronyms and definitions
•
OS: !perating system 8e"g". $indows:
•
OEM’s- !riginal e=uipment manufacturers 8e"g". Dell. ,ompa=.
>ateway:"
•
IAP’s: ?nternet access pro&iders 8e"g". Yahoo. +!%:"
•
ISV’s - ?ndependent software &endors" Software &endors not affiliated
with icrosoft or +pple"
•
API’s- +pplication programming interfaces" 1These are synapses at
which the developer of an application can connect to invoke pre-
fabricated blocks of code in the operating system. These blocks of code
in turn perform crucial tasks, such as displaying text on the computer
screen. Because it supports applications while interacting more closely
with the PC system's hardware, the operating system is said to serve as a
‘platform.’” Judge Jackson’s Finding of Fact
Case Background
icrosoft@s antitrust trou#les
#egan in 7AA'" r" >ates signed
a consent decree in 7AAB to
settle an earlier filing #y the
D!ates &iewed middleware 8the
Java programming language and
0etscape #rowser software: as rivl
plt!orms !or ISV’s. >ates feared
middleware would #ring down the
applications #arrier"
Eear Brown@s comments 8wa&:
;he go&ernment alleged that icrosoft
designed its licensing agreements with !E@s
and ?+P@s so as to preser&e the applications
#arrier" ;his was also its o#Decti&e in gi&ing
away ?nternet Explorer for free"
!vidence of "willful ac#uisition and
maintenance . . . “
The (!M Channel
•
%icensing agreements with !E@s stipulated pre-
installation of ?nternet explorer"
•
?nternet Explorer icon must appear on the desktop after the
initial #oot-up se=uence"
•
!E@s prohi#ited from pre-installing 0etscape #rowser
software"
The I#+ Channel
•
Microsoft offered IAP’s valuable “real estate” on the Windows
desktop in exchange for their agreement to distribute Internet
Explorer exclusively. Hear audio explanation (wav)
•
If an IAP was already under contract to pay Netscape a certain
amount for browser licenses, Microsoft offered to compensate
the IAP the amount it owed Netscape.
•
Microsoft also reduced the referral fees that IAPs paid when
users signed up for their services using the Internet Referral
Server in Windows in exchange for the IAPs' efforts to convert
their installed bases of subscribers from Navigator to Internet
Explorer.
,-part test for illegal tying
7" 1;he seller must possess power in the tying product market"H
Effective tying entails leveraging a dominant position in the tying
product market to achieve a dominant position in the tied product
market.
9" 1;here must #e a su#stantial threat that the tying seller will ac=uire
market power in the tied-product market" ?f " " " the tying
arrangement is likely to erect significant #arriers to entry into the
tied product market. the tie remains suspect"1
6" H;here must #e a coherent #asis for treating the tying and tied
product as distinct"H
a
a
Microsoft Corporation is an American multinational corporatthat develops, manufactures, licenses, supports and sells computer software, consumer electronics and personal computers and services. Its best known software products are the Microsoft Windows line of operating systems, Microsoft Office office suite, and Internet Explorer web browser.
High Technology Industries:
Competitive Issues and the
Microsoft Case
Salient structural features of
high technology industries
•
Product and price differentiation
•
Bundling
•
Switching costs and lock-in
•
Supply-side economies of scale
•
Demand-side economies of scale
•
Standards
•
You cannot purchase Excel or PowerPoint as stand alone
applications—you must purchase icrosoft !ffice"
•
!perating systems #undled with internet #rowser
software"
The practice of selling two or more
distinct goods together for a single
price.
Switching costs and “lock-in
Switching from $indows to
%inux means changing
document formats and
software applications" $e
will ha&e to train employees
to use the new platform"
!conomies of scale
'
(
)uantity*time
+&erage ,ost
anufacture of
software in&ol&es
su#stantial
de&elopment costs
#ut negligi#le
marginal cost
"etwork effects
+ good exhi#its network effects if the demand for
the goods depends on how many other people
purchase it"
Examples- fax machines.
picture phones. e-mail"
Si/e of network
$illingness
to pay
Demand cur&e
Supply cur&e
0etwork Effects and Demand
'
1,ritical mass2
area
03
$illingness to
pay #egins to
diminish at
network si/e 03
due to 1network
congestion2
effects"
The Microsoft case
icrosoft ,orporation &" 4"S" 56' 4"S" 76'7 89''':
;he +ntitrust Di&ision of
the D!< won Sherman
section 7 and section 9
con&ictions against the
software giant"
#cronyms and definitions
•
OS: !perating system 8e"g". $indows:
•
OEM’s- !riginal e=uipment manufacturers 8e"g". Dell. ,ompa=.
>ateway:"
•
IAP’s: ?nternet access pro&iders 8e"g". Yahoo. +!%:"
•
ISV’s - ?ndependent software &endors" Software &endors not affiliated
with icrosoft or +pple"
•
API’s- +pplication programming interfaces" 1These are synapses at
which the developer of an application can connect to invoke pre-
fabricated blocks of code in the operating system. These blocks of code
in turn perform crucial tasks, such as displaying text on the computer
screen. Because it supports applications while interacting more closely
with the PC system's hardware, the operating system is said to serve as a
‘platform.’” Judge Jackson’s Finding of Fact
Case Background
icrosoft@s antitrust trou#les
#egan in 7AA'" r" >ates signed
a consent decree in 7AAB to
settle an earlier filing #y the
D!ates &iewed middleware 8the
Java programming language and
0etscape #rowser software: as rivl
plt!orms !or ISV’s. >ates feared
middleware would #ring down the
applications #arrier"
Eear Brown@s comments 8wa&:
;he go&ernment alleged that icrosoft
designed its licensing agreements with !E@s
and ?+P@s so as to preser&e the applications
#arrier" ;his was also its o#Decti&e in gi&ing
away ?nternet Explorer for free"
!vidence of "willful ac#uisition and
maintenance . . . “
The (!M Channel
•
%icensing agreements with !E@s stipulated pre-
installation of ?nternet explorer"
•
?nternet Explorer icon must appear on the desktop after the
initial #oot-up se=uence"
•
!E@s prohi#ited from pre-installing 0etscape #rowser
software"
The I#+ Channel
•
Microsoft offered IAP’s valuable “real estate” on the Windows
desktop in exchange for their agreement to distribute Internet
Explorer exclusively. Hear audio explanation (wav)
•
If an IAP was already under contract to pay Netscape a certain
amount for browser licenses, Microsoft offered to compensate
the IAP the amount it owed Netscape.
•
Microsoft also reduced the referral fees that IAPs paid when
users signed up for their services using the Internet Referral
Server in Windows in exchange for the IAPs' efforts to convert
their installed bases of subscribers from Navigator to Internet
Explorer.
,-part test for illegal tying
7" 1;he seller must possess power in the tying product market"H
Effective tying entails leveraging a dominant position in the tying
product market to achieve a dominant position in the tied product
market.
9" 1;here must #e a su#stantial threat that the tying seller will ac=uire
market power in the tied-product market" ?f " " " the tying
arrangement is likely to erect significant #arriers to entry into the
tied product market. the tie remains suspect"1
6" H;here must #e a coherent #asis for treating the tying and tied
product as distinct"H
a
a