The regulation of Monopolies & the Microsoft Trial
Research Paper
Macroeconomics
By: Ashleigh Magliano

Introduction:
Larger companies can become big threats to other smaller companies that are in a given market due to their power and innovation. Sometimes this can become more than a threat, and it turns to no competition at all between the markets due to the monopolization of a company. A company becomes a monopoly when it gains the control of the industry and has obtained the ability to change the output prices in that specific industry. With such power this opposes a threat to other businesses. The government has set up specific regulations for monopolies to control what they sell, how they sell it, and what services are allowed for consumers. The importance of regulating monopolies is to keep the market alive, to allow freedom for other smaller businesses. This keeps up competition in the market, and also keeps the monopolies from doing anything unreasonable. This has led to numerous trials on major companies, one of the biggest cases would be the trial against Microsoft INC.
Acts for Regulating Monopolies:
In 1890 the Sherman Antitrust act was put into effect, named after the Senator of Ohio, John Sherman and was the first component for congress to prohibit trust.(General Records of the United States Government, Record number 11) The Sherman Act intended by congress to help keep up competition in markets. Unfortunately the act was written to vague there were loopholes to the act and in only five short years the Congress picked apart the act. The act was used again later down the road to successfully help the economy. In 1904 the Sherman act was used to resolve the Northern Securities Company in State of Minnesota v. Northern Securities Company and by 1911, President Taft used the act against the Standard Oil Company and the American Tobacco Company. In the late 1990s, in another effort to ensure a competitive free market system, the Federal Government used the Sherman Act more recently on the Microsoft computer software company. (CompactLaw)
Created to keep up with the regulation of monopolies is the Federal Trade Commission and has the most impact on today because it is still currently used. It was created in 1914 as a battle to “bust the trusts” by creating fair competition through prohibiting unfair trade. In the same year the Clayton Antitrust act was set up to help slidify Federal trade Commission which at that time was originally known as the Federal Commissions Act. (Wallechinsky, David, FTC) Through the use of this act it became very helpful on stopping monopolies from occurring that it became a necessity for the economy and it became known as the Federal Trade Commission when a the first building for the Federal trade Commission was built in 1938 by President Roosevelt. The building today is still the functioning home for the Federal Trade Commission. (History,FTC)
Also known as FTC, it was placed in order to protect the american consumers. Against anti competitiveness and the ability to give consumers choice the desired end result was to make it so products were at a low prices for consumers could have a fair choice and create efficiency and innovation. Today it is still in effect after over a hundred years and its dual focus is still on promoting competition as well as protecting the consumers. When it comes to promoting competition FTC does this currently through educating about the importance of steady competition and the responsibilities that you have. They also perform investigations when necessary and sue the businesses that are not complying with the law. FTC protects the consumers through three factors, price, selection, and service. (WhatWeDo, FTC) Keeping prices low and the product selection at a variety, this makes it so that our economic market is open and free and is enforce through the antitrust laws. Through monitoring the market is a way that they based the appropriate changes to make for the market.
Another impact on large business’s was created in 1914 called the Clayton Antitrust Act. This act was put in place as a support act to regulate monopolies. This act was entitled to do many things “Protect trade and commerce against unlawful restraints and monopolies” and was also entitled “To reduce taxation and provide revenues for the government and other purposes”. (63rd Cong., Sess. II, p. 730) This legalized strike, picketing and boycotts that were kept peaceful. This act prevents the attempt to freeze out local competitors with price reductions, it also prohibits exclusive sales contracts. The act is enforced by the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice.The act is important because it helps prevent workers from working with long hours with a low pay rate.
How Governments Regulate Monopolies The government uses six different tools that can be used to determine and regulate the economy. One way would be price capping through limiting price increases in areas such as the OFWAT (tap water). This is calculated through a formula RPI-X (Tejvan R Pettinger, Regulation of the Economy), this formula has some advantages as well as disadvantages. A plus from this is the ability to reduce the ability for a monopoly to occur as well as have set price limitations that overall can increase their profits. The negative side would be that it is hard to accurately know what X really is and that can throw everything off. Also with this business can use those readings to change prices but then it create subnormal profits. A second way that the government regulates monopolies would be through quality of service. Quality of service is everything. It is that lasting impression that you have in regards to a business and its product and it what can create those lasting bonds between a consumer and the seller. If the quality of service is not there then it is likely for a company or product to fail or not to be as in demand as its potential. This is based specifically so that companies can't cut corners. (Tejvan R Pettinger, Regulation of the Economy) Third, the government uses the merger policy in regulating monopolies. If a firm create more than 25 of market share then it told to the Competition Commission and they decide it the merger is allowed or not. (Tejvan R Pettinger, Regulation of the Economy) The fourth tool used would be for the government to just simply break up the monopoly. This is a rare occurrence and is a result of the fear that a corporation is becoming too large and powerful in its market and potentially could freeze competition. A fifth way that the government regulates monopolies is through the rate of return. This is determined by looking at a firm and comparing its size and profit from the capital base. If a firm is creating too much profit in comparison to its capital base then taxes could be lifted and price cuts can be placed into effect.
In order for a company to be called a monopoly they would need an excessive amount of control on its consumers. The government is in control of keeping large companies from becoming a monopoly, and to make sure that there is always room for competition in the economy. Regulation of monopolies was first started to protect the consumer. (Conigliaro, Government Regulation of Monopolies) Business become a monopoly when there is no room for competition in that market. When there is suspicion of a monopoly there becomes an investigation which is the final way that a government can regulate a monopoly. This investigation includes looking at vertical restraints, the prices of the goods, and collision. (Tejvan R Pettinger, Regulation of the Economy)
Benefits and Consequences: There are many reasons for the government to regulate monopolies, and although there are two general reasons there are other components to regulating monopolies. One would be to prevent excess price, by doing so this can lower the need for income assistance programs because goods will be more affordable. Also for the quality of service, which it a large part of being a successful business. The quality of service ensures product knowledge and shows the lack of greed a larger company may have. Also the monosopy of power, which is when larger firms try to take as much out of their suppliers. When are firm is suspected to be on the track of a monopoly the Competition Commission's is right on top of that trying to stop the process. Numerous court cases have arisen from being accused of being a monopoly. A rather large and popular case would be the Case against Microsoft INC.
The Regulation of Microsoft Microsoft is the leading supplier of PCs all over the world. Microsoft began in 1975 and was found by Bill Gates and Paul Allen in Albuquerque. In 1980 Microsoft partners up with IBM on a project called chess. Which is eventually became known as MS-DOS which is the operating system that Microsoft runs on. In 1990 Microsoft debuts Microsoft 3.0 which sold ten million copies in the first two years. (Microsoft, History) Quickly growing and in 1995 windows 95 is released and in the first five weeks it sold seven million copies and the software became popular for in the home as well. (Microsoft, History) At this time the MS-DOS was serving eighty percent of the nations pc’s, and in the summer of 1995 the first ever version of internet explorer was released. (Microsoft, History) Over the last almost thirty years Microsoft has become so big and important in the pc world, and currently the newest version would be windows 8. Although looking at the timeline of Microsoft may seem to be very astounding but as of 2007 Microsoft has been a borderline monopoly for fifteen years. (Irish Times, Judgement Day) Ten years prior to 2007 the Europe started to rack up suspicion of Microsoft due to the fact that Microsoft incorporates its own media player which in effect is shutting down other downloadable media players. Also that Microsoft should be sharing their key knowledge to other corporations in the market so that way there is even competition and to help expand innovation. (NY Times, Microsoft) In defense of Microsoft it was stated "biggest encroachment on intellectual property rights in competition law history" was used in court.( NY Times, Microsoft)
In August of 2007 the company Microsoft had a case that was going on in the United states for over a decade. The case was finally reviewed and closed. Its was ruled that Microsoft violated the Sherman Act a 2 violation. (Civil Action No. 98-1232) through suppressing competition with in the market for media players. It was then ruled that Microsoft denied competition from its competitors like Netscape and Sun. With this ruling, the middleware of competition was protected from Microsoft and now all platforms now have the same opportunity to succeed. Still the leading PC supplier in the world Microsoft is forecasted to have other monopoly scares in the future which is why the company has a close eye on it at all times. Conclusion: Without regulating monopolies there wouldn't be a fair change in any given market. It would be close to impossible to start a new company when there is already someone out there doing it bigger and better than you that they become the primary seller of the product, or service. Microsoft is a great example of this exact thing occurring. By incorporating more applications in the actual computer there is less of a change for a consumer to go out and buy another one. When people stop purchasing then businesses freeze and there is no more competition in that market. When a company is a monopoly it is hurting the economy as a whole and can hurt its own business in the long wrong because the government will stop you from becoming a monopoly through its different tactics and this is extremely important for a healthy economy.

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