South-Western College Publishing - Economics  
Judge's Decision Opens (Bill) Gates to Lawsuits
Subject Assumptions, sources and welfare effects
Topic Monopoly
Key Words Monopoly, anti-competitive practices, harm, price, revenues, damages, incentive
News Story

Microsoft has been judged to be a monopoly, using anti-competitive practices to harm consumers and restrict innovation. The company chose to price its upgrades at the high end of a possible range apparently to maximize revenues.

The result is that lawyers are indicating that they will file class-action lawsuits accusing Microsoft of using its monopoly in operating systems software to overcharge buyers of Windows 95 and 98. Microsoft could be subject to billions of dollars in damages. However, users of pre-loaded software cannot generally recover damages. There is also doubt over when Microsoft's monopoly began

The judgment is a finding of fact and is not admissible in private suits. However, when the Microsoft verdict is in, the conclusions of law will be admissible. Thus Microsoft has an incentive to settle the case.

(Updated January 1, 2000)

Questions <.td>The judge found that anti-competitive practices created a monopoly. However, it could be that some barriers to entry exist that are legal. What might they be in view of what you know about Microsoft.
1. The news story indicates that Microsoft had a choice of prices for its operating systems upgrades. Why is its market therefore not perfectly competitive?
3. The judge said that Microsoft is a monopoly and harmed consumers.
  a) Draw a diagram showing the demand and marginal revenue curves and the marginal cost curves of Microsoft. Mark its equilibrium price and output.
  b) Now shade in the consumer surplus and deadweight loss.
  c) To the side of your diagram, draw a similar set of curves, but this time mark what would be the perfectly competitive equilibrium and the associated consumer surplus and deadweight loss.
  d) Using your diagrams, explain how and why consumers have been harmed by Microsoft's monopoly.
4. Why do attorneys feel it is worthwhile suing Microsoft? Refer to your diagram of Microsoft's equilibrium above.
Source Steve Lohr, "Microsoft Faces A Class Action On 'Monopoly," The New York Times, November 22, 1999.

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