Anticompetitive practices refer to a broad range of business activities in which a firm might engage to eliminate inter-firm competition, maintain, or increase market share, grow profits without improving the quality of products and services or lowering costs (Khemani & Shapiro, 2003).  Microsoft engaged in monopolistic behavior to gain a competitive advantage over major rivals such as Netscape. In such a case, the market demand curve matches the firm’s demand curve as it is the only market player (McKenzie, 2008).

Economic theory assumes that individuals are driven by self-interest (Jacobs, 2010). In the case of Microsoft, the main reason for creating market barriers might be the need to maximize profit and sustainability, as monopolies often make supernormal profits. This is justified by the incidents from the case study where Microsoft has abused its market power to disadvantage consumers and competitors through reduced consumer choices and misallocation of resources. The selected economic model is thus expressed in the hypotheses below.

  • Hypotheses

H0= There is no significant relationship between anticompetitive practices and growth in consumer demand for goods and services

H1= There is a significant relationship between anticompetitive practices and growth in consumer demand for goods and services

The model presented above is the most appropriate because it examines the connection between the anticompetitive practices by Microsoft and the need to grow its customer base, increase supply and attain profit maximization. This model is also helpful in determining the root causes of the monopolistic activities practiced by Microsoft Corporation.

Qualitative analysis and Findings

Table 1 below compares the number of users who purchased various products and services from Microsoft in the years 2016 and 2017. There was significant growth in the number of users for each of the four items. This could mean that anti-competitive practices by Microsoft attracted more customers to its products and services. It can further be interpreted to mean that anticompetitive activities reduced competition and contributed to significant consumer demand and supply growth.

Table 1: Customer Base

Users of



Office 365 Commercial

Over 100 million

Over 70 million


More than double the previous year’s digits

Triple digits

Windows 10

Over 500 million

400 million

Xbox Live

Over 53 million

49 million (33% growth)

Source: Microsoft Annual Report (2017)

Table 2 examines the effect of the growth in customer base (explained above) on the firm’s profitability. There was a fall of $8,260,000 in revenue between 2015 and 2016, followed by growth of $4,630,000 between 2016 and 2017. Conversely, Microsoft Corporation experienced continuous growth in net income from 2015 to 2017. Similarly, there was a continuous increase in total assets, and the stock performance improved (Figure 1). Increased production and supply of products and services to meet the growing demand must have increased operating expenses, reducing operating income in 2017.

Table 2: Financial Results (Amounts in $)






89, 950,000



Net Income




Total Assets




Research and Development

13 billion

12 billion

12 billion

Operating expenses increase

$973 million (11%)



Operating Income decreased

$177 million (2%)



Source: Microsoft Annual Report (2017)

Market Structure

Microsoft Corporation is a monopoly, and its monopolistic market structure encourages growth in consumer demand since consumers assume that the organization has no substitute. The case study shows that the organization has strengthened its monopolistic position through many practices, including entering into anticompetitive agreements with Internet Content Providers (ICPs) to prevent the promotion of browsers from its rivals; and making PC OEMs agree to adopt the uniform “boot-up” sequence and “desktop” screen by Microsoft, to earn its license.  

Microsoft’s Anticompetitive Practices

In 1994 Microsoft decided to stop the operations of the competing entities that sought to make competing products, mainly internet browsing software such as Netscape’s Navigator. Though these actions landed Microsoft Corporation in court, the company has adopted an increasingly anti-competitive stance against its competition, hoping to use its near monopoly powers and leverage in the personal computer operating system software market to wrestle for itself some share of the internet browsing software market. In this essay, the problem with Microsoft as a corporation, being that it takes anticompetitive actions against its industry peers, will be assessed. Additional emphasis will then be placed on articulating the root cause of the problem and the economic model that best applies to the problem.

  • Identification of the Issue

For this research effort, the issue was the unethical and sometimes outright illegal actions of the giant technology firm, Microsoft Corporation, to keep out the competition from using its operating software platform to gain an advantage over it in the internet browser market. Of particular interest was the fact that Microsoft sought to, among other things, tie in its internet explorer (IE) software with all its Windows operating software versions to help predispose the consumers to use its internet browser; in the process, the company denied the consumers the chance to choose so far as the browser software to use is concerned.  Further, this research will focus on why the manufacturers of original equipment, mainly personal computers, had no viable alternative to the Windows range of products, hence conferring upon Microsoft as a corporation and monopoly for all intents and purposes.

This research effort was also trained on the natural and perceived barriers (including the high cost of developing other operating system software and creating applications that only ran on the Windows platform) that prevented entry into the personal computer operating software market. This research will also seek to understand why the Microsoft Corporation consciously decided to make it difficult for other manufacturers of internet browsing software to use its windows operating system platform but conditioned their Internet browsing software (IE) to work on other non-Windows, non-Microsoft operating systems platforms. Finally, the research will also concentrate on how Microsoft Corporation could have handled the entire browsing software wars with its industry peers to this extent. The research will seek to outline the alternative strategies that could have been employed by the dominant player in the operating software market to gain an edge over other players.

  • Economic Model

Given that this is a double-sided issue (emanating from both producers and suppliers), the economic model to be used in this case should be a mixture of both the supply side and demand side models, with an emphasis on the supply side aspect of the two models. For one, as Canto, Joines & Laffer (2014) note, the supply-side economic model would be appropriate for the practices adopted by the Microsoft Corporation in response to competitors in the internet browser software market, for it underpins the important role of production. In this regard, Microsoft should have sought ways of offering a better product for the market to compete favorably with other players such as Netscape. The supply-side economic model would also have been appropriate because the main problem (in this case) was not with the customers but with the producers.

For the research effort, the demand side model would be vital as it helps highlight the central role that the consumers of the goods in question (the internet browsing software), coupled with the investment in the development of new software by the entities in the industry play in determining the desire for the products and subsequent market share of each entity. To this effect, Microsoft should heavily invest in developing browser software that invokes the desire to consume in consumers. The demand side model is also helpful in this case as it hinges on the foundation, as Priem, Wenzel & Koch (2017) confirm, that production of commodities is the most critical factor in determining the growth of the supplier’s market share. Regarding the supply side model, Microsoft should endeavor to make products that appeal to the customers and meet the end user’s desires. Other manufacturers of browsing software should also have had viable alternatives to Microsoft’s IE to offer consumers a choice.

  • Root Causes of the Problem

In so far as the browser wars that had Microsoft resorting to anticompetitive practices are concerned, the root cause of the problem was the failure of the company to take advantage of the emergence of the world wide web, a fact that left the company playing catch up with Netscape and other browser makers. The fact that Microsoft as an entity did not carry out adequate research into consumer tastes and preferences before launching and later improving its internet explorer (IE) browser software can also be cited as a cause of the anti-competitive practices that it had to take up to ward off the leading market share of the browser software that Netscape already controlled. Rubinfeld (2015) seems to suggest that the problem for Microsoft could also have been a result of inadequate strategic planning, as seen in the attempt to control one market (that of the internet browser software) with the strengths gained from another different market (the operating system).


The US Department of Justice (1999) reports that the court found that apart from owning monopolist power in the Personal Computer (PC) operating systems market, the company used a wide variety of strategies to protect the monopoly of its operating system and caused a decline in innovation and consumer’s wellbeing. The actions taken by Microsoft were thus found to have violated the Sherman Act, which protects the rights of consumers. The actions of Microsoft must be controlled. Since Microsoft is a monopolistic (McKenzie & Shughart II, 1998), strategies for resolving the problems it has caused in the economy should encourage competition.

  • First Recommendation

The first strategy that will correct the harmful results of choices made by Microsoft Corporation is to place restrictions on its future actions. This implies that restrictions and requirements will be listed to address the broad range of illegal behavior identified by the court. The restrictions should ensure the withdrawal of the agreement between Microsoft and Internet Content Providers (ICPs) and the undoing of the agreement with PC OEMs. These initiatives will ensure that browsers from rivals of Microsoft are also promoted and that manufacturers can produce browser software that meets the demands of customers who prefer other alternatives to Internet Explorers. Microsoft has been able to set goals and achieve them. The market structure will move from a monopoly to a competitive market.

In 2016, the company set a target that its cloud-based applications, significantly Office 365 and Dynamics 365, would help it achieve $20 billion in the commercial cloud in the fiscal year 2018. Surprisingly, Microsoft achieved 20.4 billion in the first quarter of the fiscal year 2018. Even the EPS shot to 84 cents as opposed to the predicted 72 cents. Allowing alternative browser software companies into the market should lead to the manufacture of products for customer relationship management and enterprise resource planning to compete with Office 365 and Dynamics 365 so that customers choose products from other producers. The result should be a decrease in Microsoft’s customer base decline in demand, supply, and overall net profit after tax. Even if Microsoft remains competitive, its stock performance will range at the same level as S&P 500 Index and NASDAQ Computer, which are currently below it (Figure 1). The risk is that this strategy may cost the company money and be too complicated for the government to enforce. The second strategy is, therefore, more practical.

  • Second Strategy

A second strategy is applying a competitive remedy to convert the Microsoft monopoly into a competitive market structure directly. Such a strategy aims to separate the company’s operating system from other product lines. Also, the strategy should allow other companies to possess “Windows” under conditions that will ensure the selected companies have complete ownership of appropriate intellectual property and have the same number of employees, contracts, and other relevant resources. This will not need regulations, but it should lead to rapid innovation in computer operating systems. 

Innovative firms in the competitive market will win more customers from competitors, so once again, Microsoft will experience a reduction in its Office 365, which was over 100 million in 2017 (Annual Report, 2017). This may not significantly impact revenue and may leave it at $89, 950,000. Still, the net income and total assets will decrease (from $21,204,000; and 241, 086,000 in 2017), and expenses in research and development will have to be increased from 13 billion (to discover innovative practices). This strategy may be costly for Microsoft Company, but it has no uncertainties. It is workable.