Microsoft, a software giant, was sued in the late 1990s for antitrust bundling. The department of justice undertook legal procedures against the company on the basis that an application, the Internet Explorer (IE), usually found on Windows operating system (OS) software in personal computers, should have been an independent software package. The application is found on every copy of Windows OS software package, while Microsoft manufactures separate web browsers for other operating systems (Eisenach & Lenard, 1999). In this regard, the department of justice argued that Microsoft was exercising rent seeking and monopoly in a country, where only government monopoly was acceptable. Furthermore, it was alleged by the plaintiffs that a pure monopoly had emerged since no single close competitor to Microsoft was present in the market. Imperfect competition was noted by the Department Of Justice since Microsoft provided every user of Windows OS with a copy of the IE. Considering that majority of computer users used the Widows operating system, they did not find it necessary to purchase a browser application. In addition, the Department of Justice raised suspicion on Microsoft’s actions of obtaining license agreements with original hardware manufacturers to ensure restricted purchases from other software manufacturers. These manufacturers argued that Microsoft was not using marginal cost pricing (Eisenach & Lenard, 1999).
Microsoft in their defense argued that the application, Internet Explorer, was a part of the Windows OS computer software, and a part of their innovation and effort towards offering their customers the best possible package. The software giant also testified that there was no definite principle, on which to distinguish the operating system and the IE application as separate entities. Microsoft was not necessarily aimed at creating a crippling monopoly, but a natural monopoly could have emerged due to the company’s innovation and competence.
I concur with Microsoft’s argument that X-inefficiency caused the emergence of a monopolistic market. Since the application was a product of the Microsoft Corporation, other companies should not have sought to govern how Microsoft modifies its software package to suit customer demand. If the rival companies wished that their browser application be sought after as a replacement of the Internet Explorer, they should have made a distinctively better product. Otherwise, there was no reason that the customer should buy what they had to offer.
Microsoft had been developing software for a long time, particularly the type of software that integrates graphic user interfaces into the package. The company has an obvious responsibility of maintaining good faith in every product they manufacture in terms of marketing ethics and the federal law (Eisenach & Lenard, 1999). However, the company also had the right to do whatever was necessary to make the best profit as long as the market had at least a downward sloping demand curve. Given the economies of scale, Microsoft had an obligation of providing its customers with the best software package to ensure that the customers got a fair value of the financial commitment undertaken, when purchasing the software (McDaniel, 2002). Sometimes, a monopoly could turn out to be a good thing for the consumers and company shareholders as well. A British engineering company, Westinghouse, was able to sponsor research and technological development, and develop massive market power through monopoly. The monopolistic nature accrued economic profit, which enabled the raising of funds, used to ensure that there is good product quality for consumers. In addition, the value of shares and dividends significantly appreciated to the advantage of the shareholders in the early twentieth century (McDaniel, 2002). Microsoft employed this same kind of approach to develop a competitive product that serves the customers satisfactorily.