An Article Review on Monopolies
Monopoly is one of the major market structures in the world. In this structure, there is only one firm which produces and sells a unique product. Thus, there are no close substitutes for the goods and services offered by the company. In turn, this ensures that the firm faces no direct competition from other businesses in the market. Usually, a monopoly sets its prices at a point that maximizes its profits. In this market structure, there exists imperfect information between the firm and consumers regarding the quantity and prices of the product (Stigler, n.d.). Today, various monopolies exist around the world. The most prominent examples include Microsoft Corporation and State-owned railway systems. Additionally, Netflix is also working its way towards monopolization. In common, Microsoft and Netflix are significantly working towards driving out their competitors out of the market, through the creation of barriers to entry.
According to the article ‘Microsoft's Illegal Monopoly,’ (2000) the company was taking advantage of its monopoly power over Windows, thereby abusing it. As such, the company broke the Antitrust Laws (New York Times, 2000). Typically, Windows is the operating system used in a majority of personal computers globally. In the article, the government claimed that Microsoft used its monopoly over the OS to influence most of its consumers to use its browser, instead of using Netscape. What is more, the browser could actually replace other software and replace it with Windows as main the word processor (New York Times, 2000). In turn, this inhibited other manufacturers’ browsers from being used by consumers. Predominantly, Microsoft used this tactic to insulate itself from competitive challenges by other companies. The government also argues that the company used its market power to sway the largest internet providers from using Netscape, thereby discouraging consumers from using Netscape’s browsers (New York Times, 2000).
By and large, Microsoft Corporation operates in a monopoly market structure. Often, monopolies produce goods and offer services that have no close substitutes. Over the past few years, the corporation has differentiated its products from that of its potential competitors, thereby significantly reducing the level of competition in the market. Besides, the company has exclusive ownership of the Windows operating system (Mulligan, 2012). Thus, it has overall control of the products that can be compatible with the program. In turn, this excludes other competitors or make it extremely difficult for them to access consumers. By doing so, Microsoft has created significant barriers to entry into its market (Moffatt, 2014). In turn, this has made it hard for competitors such as Netscape to access consumers and thrive in the market.
In addition to the barriers instigated by Microsoft, there are natural barriers to entry into the market. More specifically, the entry into the market requires a large amount of capital to startup operations (Albro, 2007). The cost structures of such companies are substantially high for small corporations to afford. Even when they enter the market, the massive operational costs will weigh down their profits. Eventually, continued losses drive them out of the market (“Microsoft Monopoly,” n.d.). In turn, this gives Microsoft an advantage, given that it benefits from economies of scale given its large operational capacity. Another salient feature of the Microsoft monopoly is that the corporation sets its prices, thereby enabling it to maximize profits (“Microsoft,” n.d.). Over time, the company has managed to insulate itself against direct competition from other businesses, thus maintaining its monopoly power in both local and international markets.
In the same view, a 2016 article in the Business Insider narrates how Netflix is working its way towards becoming a monopoly. In the article ‘Hollywood fears the Netflix monopoly,’ the company has been spending a lot of money on original series. Currently, the company’s biggest competitors in the market are Amazon and HBO (Business Insider, 2016). Last year, the two rivals spent approximately $2 billion in their annual content budget while Netflix invested $6 billion for the same (Business Insider, 2016). Besides, the company currently produces more programming than any other individual network or cable station in the world. In last year alone, its original series increased from zero to thirty (Business Insider, 2016). Consequently, the company has gained a disproportionate control over the series market.
Additionally, the enterprise has significantly improved its reputation. In the past year, the organization received 54 nominations at the Summer Emmy’s Awards (Business Insider, 2016). Nowadays, it has become difficult for other companies to match up Netflix’s stature. So far, the company has approximately 83 million global subscribers (Business Insider, 2016). It has also signed contracts with renowned actors such as Brat Pitt and Will Smith. In turn, this has guaranteed the company viewership from all over the globe. Besides, its readiness to spend on content has increased viewing choices for its subscribers all over the world. As a result, the TV industry is fearful that it may be tough to compete against Netflix.
It is imperative to note that if this trend persists, Netflix will develop into a monopoly in the near future. The intense competition that the company sets on other organizations in the market may drive out weak companies from the market (Reisinger, 2007). Most people are now consuming more media content offered by the enterprise than ever before (Business Insider, 2016). Hence, the company’s market share is significantly increasing. In the long run, a large market share will guarantee the company exclusive market power (The Economist, 2014). In turn, this will significantly enable the corporation to dictate the price level and level of output. Moreover, there are a sharp rise subscription streaming services, and the importance of original video content is growing. This trend may also drive out Netflix’s competitors from the market, thereby making it the ultimate monopoly in the industry.
All in all, all factors considered, monopoly is a significant form of market structure globally. There are various monopolies globally, among them Microsoft. Currently, Netflix is also working its way up towards the monopolization of its industry. Primarily, the two companies have done their best to create significant barriers to entry into their respective markets. Subsequently, this has significantly reduced the level of direct competition in the market. Besides, their products are unique and do not have close substitutes. In this regard, the two firms are bound to make huge profits from their respective operations.
References
Hollywood fears the Netflix monopoly. Business Insider. Retrieved from https://www.businessinsider.com/hollywood-fears-the-netflix-monopoly-2016-9?IR=T
Mulligan, C. (2012). What Happened to the Microsoft Monopoly? The New York Times. Retrieved from https://economix.blogs.nytimes.com/2012/06/20/what-happened-to-the-microsoft-monopoly/?_r=1.
Microsoft's Illegal Monopoly. (2000). The New York Times. Retrieved from https://www.nytimes.com/2000/04/04/opinion/microsoft-s-illegal-monopoly.html.
Moffatt, M. (2014). What You Need to Know About Monopolies and Monopoly Power. ThoughtCo. Retrieved from https://www.thoughtco.com/overview-of-monopolies-1146257.
Everybody wants to rule the world. (2000). The Economist. Retrieved from https://www.economist.com/news/briefing/21635077-online-businesses-can-grow-very-large-very-fastit-what-makes-them-exciting-does-it-also-make.
Stigler, G. Monopoly. Library of Economics and Liberty. Retrieved from https://www.econlib.org/library/Enc/Monopoly.html.
Is Microsoft a monopoly? If so, why does it matter? (2000). ThisNation.com. Retrieved from https://thisnation.com/question/027.html.
Judge calls Microsoft a "monopoly" (2000). Cnet.com. Retrieved from https://www.cnet.com/news/judge-calls-microsoft-a-monopoly/.
Albro, E. (2007). Monopoly. Eight Years Later, Is Microsoft Still a Monopoly? Retrieved from https://www.pcworld.com/article/139458/article.html.
Reisinger, D. (2007). Future Implications: Netflix - The Next Monopoly. Cnet.com. Retrieved from https://www.cnet.com/news/future-implications-netflix-the-next-monopoly/.
