University of Phoenix
December 17, 2007
Economics is a social science that seeks to analyze and describe the production, distribution, and consumption of wealth (Encyclopedia Britannica, 2007). Through this study, economists have grouped industries into four separate market structures: pure competition, pure monopoly, monopolistic competition, and oligopoly (McConnell & Brue, 2004). To gain a better understanding of these market structures, each member of Learning Team B evaluated a current company that operates in each market structure and examined the pricing and non-pricing strategies of each company.
Following a study of real-world companies, ...view middle of the document...
And itâ€™s been a tremendously successful strategy for the sole reason that whatâ€™s inside those iconic square bottles-natural artesian water sourced from a virgin ecosystem in Fiji-has a pretty interesting story to tellâ€ (Beverage World, 2007). Fiji Water glamorizes a simple product to make it stand out from the rest. Its pricing is standardized, however, the story sells.
Microsoft Corporation is one of the largest computer technology corporations in the world, with a wide array of products ranging from computer software to video gaming platforms. Microsoft has been accused of being a monopoly and using monopolistic practices to force competitors out of the industry. According to McConnell and Brue (2004), the several characteristics of Microsoft that identify the company as a near monopoly, if not total monopoly. are:
â€¢ a single seller
â€¢ no close substitutes for the product
â€¢ price maker
â€¢ blocked entry,
â€¢ non-price competition
Currently, Microsoft Windows is estimated to be installed in over 92% of computers nationwide (Netapplications.com, 2007), making it nearly a single seller. While other operating systems available, Microsoft Windows is preinstalled in almost every Windows-compatible computer sold and a wide array of software programs run only on Windows, resulting in no close substitutes.
In 1998, the United States Department of Justice began antitrust proceedings against Microsoft for its alleged monopolization of the computer operating system market. The suit alleged that there was an operating system barrier to entry because â€œan operating system serves as a platform for applications that computer users desire to run on top of the operating system. If a competing operating system has a limited number of users, software developers have little incentive to develop applications for that operating system. Without a rich set of applications, it is unlikely that many consumers will switch to the competing operating systemâ€ (Department of Justice, 2007).
It further alleged that Microsoft engaged in exclusionary activities by bundling its Internet Explorer software and related components with its operating systems. This prevented rival developer Netscape Communications from installing its own web browser on Windows computers (Department of Justice, 2007, p 3).
The findings of the case ordered Microsoft split into two separate companies. This decision was successfully appealed and Microsoft was made to share its software with third-party developers as a concession.
Monopolistic Competition (McDonaldâ€™s)
Monopolistic competition is â€œcharacterized by (1) a relatively large number of sellers, (2) differentiated products (often promoted by heavy advertising), and (3) easy entry to, and exit from, the industryâ€ (McConnell & Brue, 2004). Another key trait of this market structure is similar but not identical products or services. McDonalds is an example of company operating in the...