PLAYING MONOPOLY: MICROSOFT CASE SUMMARY • “Finding of fact” declaring that Microsoft “enjoys monopoly power” and that

it had used its monopoly power to “harm consumers” and crush competitors to maintain its windows monopoly in Web browsers by bundling its Internet Explorer with Windows. • US judge, Thomas Jackson findings, concluded that Microsoft had violated US antitrust law and was subject to the penalties allowed by the law. • Microsoft conduct ethically questionable behavior when dealing with the threat of its main competitor, Netscape and Java. • May 18, 1998, the US Department of Justice (DOJ), then headed by US Attorney General Janet Reno (an appointee of Democratic President Bill Clinton), filed an antitrust suit agains Micosoft in Judge Jackson’s court, claiming that the company had violated the Sherman Antitrust Act by engaging in “a pattern of anticompetitive practices designed thwart browser competition on the merits, to deprive customers of choice between alternative browsers, and to exclude Microsoft’s Internet browser competitors”, especially Netscape and Java. Microsoft violated antritrust law in four ways: 1. Microsoft had forced computer companies that used its Windows operating system to sign agreements that they would not license, distribute, or promote software products that competed with Microsoft’s own software products. 2. Microsoft “tied” its own browser, Internet Explorer, to its Windows operating system so that customers who purchased Windows also had to get Internet Explorer, although these were separate products and tying the two products together degraded the performance of Windows. 3. Microsoft had attempted to its operating system monopoly to gain a new monopoly in the Internet browser market by forcing computer companies that used its Windows operating system to agree to leave Internet Explorer as the default browser and to not preinstall or promote the browser of any other company.

4. Microsoft had a monopoly in the market for PC operating system and had used anticompetitive and predatory tactics to maintain its monopoly power. ANALYSIS Microsoft behaviors that ethically questionable 1. Bill Gates had a meeting with IBM and agree to provide operating system for IBM PC, although at the time he did not own a operating system. Then Bill Gates buy an an operating system from a friend for $ 60,000 and without telling his friend, he sold the operating system to IBM and along with the increase of IBM sales, Bill Gates company becoming a billion dollar firm. It is legal for Bill Gates to sell the operating system to IBM, since he had bought it and became his property. However, Bill Gates was consider unethical since he bought the software for $ 60,000 and sell it for far higher prices and obtain royalty as IBM PC market share increased. Before Bill Gates bought the software, he should calculate the market price of the OS (operating system) based on how much IBM willing to pay and use it as the based in pricing the OS. Thus the price of the OS he bought will be a fair price. 2. Bundling its Internet Explorer with Windows operating system, so that when Windows was installed on a computer Internet Explorer was also automatically installed, then users would tend to use Internet Explorer rather than go through the expense and trouble of purchasing and installing Netscape. Further, in Win98 the integration of Internet Explorer make it extremely difficult and risky for user to remove Internet Explorer and replace it with Netscape Navigator. Although in contrast, the integration of Internet Explorer made Win98 run more slowly and consumed resources on the user’s computer. Microsoft also claimed that it was now giving Internet Explorer for free. In this case, Microsoft’s customers have been suffer losses from unjust action by Microsoft. The bundling has forced customer to pay and use software that they did not prefer to, considering the fact that the use of Internet Explorer cost them more., make Windows 98 run more slowly and consumed resources on the user’s. Microsoft directly forced buyers to only one alternative source of operating system and software which is Windows and its Internet Explorer that bundled together and by creating program that extremely difficult to remove

and change it with other software or operating system which was not included in Windows platform. This practices enable Microsoft to set higher prices charge to its costumers since Windows operating system owned the most market share of operating system.The bundle also violate the right of customer by indirectly forced and prevent customers in selecting the type and price of software that they prefer to use and willing to pay. Microsoft also made a public lie by claiming that they are giving Internet Explorer for free. The fact is software consume resources, includes time and money during its development. And it is considerably large when related to technology. So, it is generally accepted understanding and not only skeptics that would consider that Microsoft claimed Internet Explorer was for free is untrue. 3. Microsoft require any computer maker that wanted Windows to sign agreement that it would not promote Netscape’s browser, and if computer maker also agreed to not even give its customers a copy of Netscape, Microsoft discounted the price of Windows. This practice had make Netscape share of the market rapidly dropped. Netscape, were prevent from entering the OS market. Netscape has the oppoturnity to enter the market, especially Windows market as the largest. One advantage of Netscape is it did not need to run in Windows and Microsoft considered this as a threat. Further, after Netscape refused to go along Microsoft’s plan to divide the browser market, Microsoft started its monopoly practices by refused to share the codes for Win95 so that Netscape unable to develop browser for Win95. This action has limited Netscape access in entering the Windows large market and compete. The action also cause losses for computer manufacturers. Computer manufacturers has lost oppoturnity to sell other products that could run on any operating system. Computer manufacturers were forced to sell one product with one price, determined by one company, this indicate monopoly practice. This action is unethical, since it was unjust for both Microsoft’s competitor and computer manufacturers. They did not have the right to set their business strategy. 4. Microsoft dealt with its Java threat by asking Sun Microsystems for the right to license and distribute Java with its Windows system. After getting the license, Microsoft distributed Java version that incorporated several changes that would no longer allow regular Java

programs to run on computers using Microsoft’s Java. Because all Windows-based computers now incorporated a copy of Microsoft’s Java, not Sun’s. Microsoft encouraged these developers by offering them special technical support and other inducements. In effect, Microsoft had turned Java in to a part of Windows so that there was now little threat that Windows would be rendered obsolete by Java. With this action, Microsoft had limited original Java program only to be operate in Windows operating system. Instead using the license to use Java, Microsoft going further by changing Java original version. This has reducing the utilitarian value of customer since they have to buy and use Windows to run Microsoft Java. Characteristics of operating system market Operating system si difficult to develop, consume vast amount of resources (time, money and human resource). Thus, only several companies obtain the adequate resources could enter the market. The company that able to develop the most preferable operating system, with the most sophisticated technology and user friendly will be easier enter the market and win the competition. In Microsoft case, IBM PC equipped with MS-DOS were prefer by its customers. MSDOS wins the competition since it gained most of operating system market share. Not only end user use MS-DOS, but also software companies were much more willing to create programs for MS-DOS large market rather than smaller market with other competing operating system. And regarding with network effect, in which a product value is depend on how many other people have already bought the product, MS-DOS market was quickly increased since more software programs were write for MS-DOS and thus more people want to buy the operating system, this had make Microsoft enjoyed the monopoly. Microsoft domination with substansial market share, has create an entry barrier for its competitior and this condition open oppoturnity for Microsoft to set business climate in the market, such as pricing and quantity of Windows product. Market of operating system is rapic growing and operating system product is get easily obsolete when new products arrive. Thus the competition among companies, especially in creating new product are intense since the need to develop and create products in relatively short time. And to develop an entirely new technology product will

require years of development so companies would tend to develop existing product. For example, after getting license from Spyglass and Sun’s, Microsoft modified both programs into Microsoft’s version, instead of developing their own version. Microsoft have the access in licensing software programs or operating system from any vendor since it acquire the largest market share in OS, this has attract all parties related to the market to collaborate with Microsoft with the idea that they also will gain a part of the large market and attract more customers that using Windows. However, licensing commonly defined as the right to use and does not include the right to modified or change the content of a product, except the agreement stated otherwise. If licensing did not clearly define it will crate bias and could result as the example of Microsoft program modification. And the bias will lead to the violation of ethical issue. CONCLUSION The Ethics Principle • Utilitarianism. Microsoft’s has burden its consumers and competitor more cost than benefits that were receive. Competitor lost the oppoturnity to sell other products, create barrier to entry and buyers were losses since using Windows cost them more. • Microsoft violated Shermann Antitrust Law by showing indication of monopoly practices to Java, Netscape and copying Apple’s OS feature. • Distributive justice holds that distributing society’s benefit and burdens should be fair. Microsoft had received the benefits and burdens the participants (competitor and consumer) in the market with more cost. Its competitor loss their business and buyer loss the right to choose. RECOMMENDATION To break up the company is less significant. However, US government should require Microsoft to open access to its operating system and prohibit such contractual provision to its vendor that indicate monopoly practices.

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