Microsoft: On Anti-Trust and Monopolies
a. Do you think the US government was right in proceeding with the anti-trust case against Microsoft? Explain. What are the disadvantages to customers when one company dominates an industry? Why should competition be encouraged?
The settlement focused on Microsoft's selling practices with computer manufacturers. Until now, Microsoft would sell MS-DOS and Microsoft's other operating systems to original equipment manufacturers (OEM's) at a 60% discount if that OEM agreed to pay a royalty to Microsoft for every single computer that they sold regardless if it had a Microsoft operating system installed on it or not. After the settlement, Microsoft would be forced to sell their operating systems according to the number of computers shipped with a Microsoft operating system installed, and not for computers that ran other operating systems.
Another practice that the Justice Department accused Microsoft of was that Microsoft would specify a minimum number of operating systems that the retailer had to buy, eliminating any chance for another operating system vendor to get their system installed until the retailer had installed all of the Microsoft operating systems that it had installed.
In addition to specifying a minimum number of operating systems that a vendor had to buy, Microsoft also would sign contracts with the vendors for long periods of time such as two or three years. In order for a new operating system to gain popularity, it would have to do so quickly, in order to show potential buyers that it was worth something. With Microsoft signing long-term contracts, they eliminated the chance for a new operating system to gain the popularity needed, quickly.
Probably the second most controversial issue was Microsoft's practice of tying. Tying was a practice in which Microsoft would use their leverage in one market area, such as Graphical User Interfaces (GUIs), to gain leverage in another market, such as operating systems, where they may have
The settlement focused on Microsoft's selling practices with computer manufacturers. Until now, Microsoft would sell MS-DOS and Microsoft's other operating systems to original equipment manufacturers (OEM's) at a 60% discount if that OEM agreed to pay a royalty to Microsoft for every single computer that they sold regardless if it had a Microsoft operating system installed on it or not. After the settlement, Microsoft would be forced to sell their operating systems according to the number of computers shipped with a Microsoft operating system installed, and not for computers that ran other operating systems.
Another practice that the Justice Department accused Microsoft of was that Microsoft would specify a minimum number of operating systems that the retailer had to buy, eliminating any chance for another operating system vendor to get their system installed until the retailer had installed all of the Microsoft operating systems that it had installed.
In addition to specifying a minimum number of operating systems that a vendor had to buy, Microsoft also would sign contracts with the vendors for long periods of time such as two or three years. In order for a new operating system to gain popularity, it would have to do so quickly, in order to show potential buyers that it was worth something. With Microsoft signing long-term contracts, they eliminated the chance for a new operating system to gain the popularity needed, quickly.
Probably the second most controversial issue was Microsoft's practice of tying. Tying was a practice in which Microsoft would use their leverage in one market area, such as Graphical User Interfaces (GUIs), to gain leverage in another market, such as operating systems, where they may have