- Abuse of market power refers to situations when firms do anti-competitive practices to limit competition and increase their personal benefit.
- As a result, due to the lack of competition, the efficiency and the motivation for innovation falls, which affects the allocative efficiency.
- Hence, governments need to intervene to prevent or correct these abuses of market power.
- Those interventions can include:
- Legislation and Regulation
- Government Ownership
- Fines
Legislation and Regulation
- Many countries have a policy called competition policy.
- This ensures that the firms in the country do not engage in anti-competitive behavior.
- These policies can include punishments if such actions are detected, such as:
- Breaking up a firm into a few smaller firms.
- Unbundling the firm's products.
However, it may be challenging to prevent this type of behaviour with legislation, because:
- There is no clear boundaries or defined acts which are considered to be anti-competitive practices and what is not such practices.
- Therefore, there could be different views on this matter, which can make it difficult to intervene and penalise.
- Some governments believe that government intervention may only further disturb the market and choose not to intervene.
- Some anti-competitive behaviours such as collusion, may be hard to prove as they are done in private and not revealed to the public.
The Microsoft Antitrust Case (United States, 1990s–2000s)
During the late 1990s, Microsoft dominated the personal computer software market, particularly with its Windows operating system and Internet Explorer browser. The company faced allegations of leveraging its market power to engage in anti-competitive practices that harmed consumers and competing businesses.
Microsoft was found to have bundled its Internet Explorer browser with Windows, making it difficult for consumers to select alternative browsers. It also reportedly used control over the operating system to suppress competition in the browser market, sidelining rivals like Netscape Navigator.
In 1998, the U.S. Department of Justice (DOJ), along with 20 state attorneys general, initiated an antitrust lawsuit against Microsoft. The government argued that Microsoft had breached antitrust laws by using its market dominance to hinder competition and sustain its monopoly.
The case culminated in a settlement in 2001, requiring Microsoft to adopt several regulatory measures:
- Separation of software components: Microsoft was mandated to share its APIs with third-party developers to encourage competition.
- No forced bundling: Microsoft had to allow computer manufacturers to sell Windows separately from Internet Explorer, increasing consumer choice.
- Oversight: Microsoft was placed under government oversight and required to provide regular reports to ensure compliance.
Although Microsoft avoided a breakup (initially proposed), the intervention reduced its anti-competitive practices. This case set an important precedent for government regulation of monopolies in the technology sector and is frequently cited as an example of how legislation can curb abuses of market power.
