Microsoft Monopoly Case Study

Monopoly is an industry that composed of a single seller of a product with no close substitutes and with high barriers to entry.

For example, Microsoft Corporation

Characteristics of monopoly

 Single seller

 the firm which is also known as the monopolist and the industry are one and the same.

 Price maker

 the firm is able to choose a profit maximizing price from a range of prices imposed by market conditions and competition.

 No close substitute for the product

 this is because there is no close substitutes for its product, the monopoly faces a little competition.

 Barriers to entry for new firms

 It is legal or natural constraints that protect a firm from potential competitors.

Barriers to entry is the firms which already

According to Microsoft (Microsoft Office Now Fastest-Selling Business Application Ever), Microsoft sold more than 20 million licenses of Microsoft Office 97 in less than a year, at the average of rate of 60,000 per day! Furthermore, Microsoft already had an installed base of 55 million for its desktop applications prior to the release of Office 97 (Microsoft Office 97 Released to Manufacturing). With the number of computer users still growing rapidly during the late 90's, it certainly is not unreasonable to assume that Microsoft sold at least 50 million copies of Office 97 in the 2 ½ years between its initial release on November 19, 1996 and the release of Office 2000 on June 10, 1999. (An average rate of 60,000 copies per day for 933 days yields 55,980,000 copies, so 50,000,000 is a conservative number.) Let's further assume that Microsoft received an average of $200 per copy, not an unreasonable figure considering that MS Office prices ranged from a little over $200 to over $400 for an upgrade, depending on version, and almost double that for a full version. Let's further assume that it cost Microsoft $50 million dollars to develop Office 97. Again, not unreasonable when you consider that Office 97 was an upgrade to Office 95, so it wasn't like they were creating the software from scratch. The cost could be

MC=MR when Q1 is produced. So Q1 is known as profit maximizing level of output. At this output level, price which is denoted as P1 is greater than ATC which is denoted as AT C1.

Total revenue=Economic profit + Total costs

Since