Subject:

Managerial Economics

Lecturer: Dr. Gajavelli V. S.

Topic:

The Market structures & Competitive analysis

case study.

Group:

4.

Group Members:1. Avilasha Singha

2. Bakul Malik
3. Gaurav Mukim
4. Hasan Armoghan

(2014067)
(2014072)
(2014094)
(2014103)

CASE 1: IS MICROSOFT A MONOPOLY?

Monopoly is a firm with the power to serve the entire market, does not face any competition and
makes own decisions on quantity supplied and price of its products. There is a lack of economic
competition for the goods or services that the monopolistic firm produces; there is also a lack of
substitute goods in the market. Under these circumstances, the law of supply and demand does
not hold. Thus, consumers are forced to consume the goods regardless of the quality or price set
by the supplying entity. Given this advantage, the monopolistic firm will sell its products at a
higher price than it would have in a competitive market, and in this way it will collect rent
leading to market insufficiency and a decline in social welfare.
But In this case, the following facts about Microsoft support the fact that it has not misused its
market leader advantage:

Microsoft accounts for 90-95% of microcomputer operating systems. It is dominating the

market. However, one could argue that its market power is gained from the consumer
choices. Its legitimacy rests upon consumers who willingly, and in a market with
alternative resources and options, chose to buy Microsoft products.
The very first phenomenon that defines monopoly, is the fact that it charges a higher
price than what would be set by the law of supply and demand in a competitive market,
and thus, take away consumer surplus- meaning that the consumers are worse off. Yet,
even if there was a perfect monopoly scenario where all consumer surpluses were
extracted by the monopoly firm, but there was no deadweight loss (DWL), from an
economist perspective, it is not a very bad scenario indeed.
Secondly, a monopoly does not face any competition or rival substitute goods in the
market, allowing it to project market power and control consumers. Microsoft, however,
is not known to have charged higher prices for its products, and is known to have
competitors in the market.
Govt. Regulation in sectors already opened to competition, just because their
entrepreneurial success resulted in large market shares & breaking apart successful
companies that do not engage in price discrimination, would send a negative message to
businesses. It would imply that if a company produces a product that is so good that
everyone wants to buy, that company will be punished because even if the consumers are
not harmed, it is the other companies that are endangered.
It is innovation and the ability of particular types of firms to achieve technical advances
that comes from monopoly profits. In this context the profits that monopolistic firms earn
provide funds for R&D. Monopolies have surplus funds with which to undertake research
and initiate innovation. On the contrary to claims that Microsofts dominance is
detrimental for innovation, the desire to maintain a dominating status provides an
important incentive for Microsoft to keep ahead of potential competitors.
And finally, it may be important to note that Monopoly profits do not go unnoticed and
always attract competitors. As a result, situations of pure monopoly are rare.

CASE 2:

AIRLINE SEEKS GOVERNMENT REGULATION OF CARRY-ON BAGGAGE

Airline companies belongs to the oligopoly market where only few big players compete
on product/service differentiation and AMR airlines being in oligopoly market adopted
this approach, so that the passengers doesnt switch to more friendly carrier with more
relaxed policy which would allow them to carry more luggage. If only AMR has adopted
this regulation, it would be at a disadvantage as it would hurt its bottom lines.

Therefore, to adopt this regulation without losing out on the customers, AMR asked the
Federal Aviation Administration to impose it which made compulsory to all the airline
companies to adopt these regulations, bringing everyone to equal level and without
leaving any alternatives for the passengers to switch their preference.

CASE 3:

US AIRWAYS BRINGS BACK COMPLEMENTARY DRINKS

There are number of factors which contributed to US airways decision to stop charging
$2 for soft drinks but the primary reason was that the US airways was the only major
carrier to charge passenger for soft drinks and that too in a depressed economy when
customers are reluctant to spend.
This damaged the US airways image and led some of its customer to switch to more
friendly carriers. Therefore US Airways abandoned its $2 drink strategy because they
would have realized in order to avoid losing their customers they have to offer
complimentary drinks which would have been the prevailing strategy since the customers
will be looking for the least expensive airlines.