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This article applies the theory of market leaders and endogenous market structures developed by Etro in 2007 to analyze an important market of the New Economy - the software market. It describes the evolution and different aspects of competition in this market and for this market. Finally, it analyzes the antitrust issues concerning Microsoft in retrospect and develops new theoretical arguments on the role of this market leader in its sector and on the bundling and interoperability parts of the recent European antitrust case.
A recent growing literature has analyzed from a theoretical and empirical point of view the role of market leaders in sectors with barriers to entry and with endogenous entry. In particular Etro (2007) has developed a full-fledged theory of market leaders and based a new approach to antitrust policy on this. This article starts from those results and approaches an important example of market leadership and technological leadership, that of Microsoft in the software market, which is also associated with the well-known antitrust issues. The choice of Microsoft as a symbol of market leadership is somewhat natural: Microsoft is one of the most visible and relevant companies in the New Economy, one of the most innovative firms in one of the most dynamic industries. The antitrust cases in which this company has been involved in both the US and the EU (European Union) attracted primary attention of media, policymakers and observers. Many important economists were involved in these antitrust cases in both the US and the EU, and many others were inspired by them while developing theoretical and empirical analysis on the structure of the software market, on the role of Microsoft in this market and on the role of antitrust policy for the New Economy.
In a recent important book, Evans et al. (2006) have emphasized the crucial role that software platforms are playing in shaping our economies, in enhancing the development of many traditional sectors, and ultimately in affecting our way of living. These "invisible engines", as they call the software platforms, power not only the PC (Personal Computer) industry but also other industries like those associated with mobile phones and other hand-held devices, video games, digital music, and (with strong externalities for the rest of the economy) online auctions, online searches and web-based advertising. |
