Team 7:
Executive Summary
Microsoft (MS) is a multinational computer technology corporation that develops, manufactures, licenses, and supports a wide range of software products for computing devices. In the mid 1990’s, Microsoft held the monopoly in the production of Operating Systems (OS) for personal computers (PC). When their monopoly was threatened by Netscape, MS began bundling the Internet Explorer (IE) web browser with Windows, using cross-promotional deals with internet service providers (ISP), and prevented PC makers from customizing the opening screen showing Microsoft. These actions, which some view as illegal and unethical, dissolved any competition, raised the barriers of entry and inhibited …show more content…
MS also had agreements with ISPs to induce them to prefer IE and disadvantage NN. MS agreed to give AOL preferential placement in Windows at the expense of Microsoft Network. This shows that MS had to retreat in other markets to win the browser war. Obviously, MS exerted the power of input suppliers - its OS monopoly - on manufacturers. To manufacturers, switching to another OS is very risky since buyers wouldn’t buy a PC with several incompatible applications. Second, MS paid some customers to use IE. Take Intuit, a significant software developer, for example. Mr. Gates reported in a 1996 email: "[W]e could do for him [Intuit CEO] that would cost us something like $1M to do that in return for switching browsers in the next few months I would be open to doing that." When Intuit and others get paid, their increased incomes lead to parallel, outward shifts in the budget lines. The new affordable bundles yield higher satisfaction levels and consumers would most likely accept the offer and switch to IE. Finally, it distributed IE without separate charge, as Paul Maritz, MS’s VP said: “We are going to cut off their air supply.” With this pricing strategy, MS wanted to push other browsers to the shut-down case (P < min AVC). It is safe to assume that AVC of any browser developer is greater than zero, so if the market price is