Does Perfect Competition Exist for Microsoft?

Introduction

Microsoft Corporation (Microsoft) is an American-based multinational firm that belongs to the technology industry. Microsoft was founded in 1975 by Paul Allen and Bill Gates, and its headquarters are located in Redmond, Washington. ("Microsoft – Official Home Page", n.d.). The company is well-known for its development, licensing, supporting, manufacturing, and selling of computer software (such as Microsoft Windows operational structures, edge web browsers, Microsoft Office suite, etc.), laptops, smartphones, and other consumer electronics ("Microsoft – Official Home Page", n.d.). The purpose of the current paper is to find out whether a perfect competition exists for Microsoft.

Characteristics of Perfectly Competitive Markets

There exist four main market structures, i.e. perfect competition, monopolistic competition, monopoly, and oligopoly. A perfectly competitive market is a market that is suppositious whereby rivalry is at the highest level possible. Perfect competition is referred to as pure competition (Mankiw & Taylor, 2011). Economists have always argued that perfect competition would bring about the best likely consequences for both the consumers and the society as a whole (Thomas & Maurice, 2010). A perfectly competitive market structure is characterized by the following three distinct features.

Perfectly competitive corporations are price-takers; they take the given market price of the product they are dealing with (the price is determined through the point of intersection of the demand and supply of that particular product). In other words, a single firm cannot increase its price independently as it will not be able to sell any of its products at all (Thomas & Maurice, 2010). On the other hand, coherent producers won’t reduce their prices below the market price as they have to sell their produces at the given market prices. All firms are price-takers since each company in the market is minute as compared to the total market in general; thus, a single business cannot impact the market price of the product it produces through altering its output (Thomas & Maurice, 2010). Nonetheless, if all the firms assemble and modify their product quantities, the market price will also be affected.

The second characteristic of perfect markets is the production of homogeneous products (Thomas & Maurice, 2010). Every firm in this particular market produces a good or service that is identical to all the other companies in that market. The product standardization in the market guarantees the consumers' triviality to the company which they buy from (Thomas & Maurice, 2010). The firms in the competitive market make products that are perfect substitutes for each other. Consequently, the features and qualities of the market product do not differ among various suppliers (Mankiw & Taylor, 2011).

The third feature of the perfectly competitive market is the freedom of entry and exit from the market (Thomas & Maurice, 2010). There are neither barriers that bar any interested firm from joining the market nor barriers that prevent the current companies from exiting their markets whenever they please (Thomas & Maurice, 2010).

Microsoft Corporation’s Market Structure

Microsoft Corporation does not meet the above features of a perfectly competitive market; hence, it does not belong to that market structure. Microsoft does not operate in a perfectly competitive market since as much as its products, such as smartphones, are similar to other smartphones, they are not perfect substitutes as in perfect markets (Mankiw & Taylor, 2011). There are some features of Microsoft products that other substitute products do not have. Microsoft also sets its prices for different products, hence not depending on the market price of its competitors (Mankiw & Taylor, 2011). Since Microsoft is a big multinational company, the entry and exit barriers are high since its departure will be felt in the market. In short, Microsoft Corporation operates a monopolistic market and not a perfect market.

Conclusion

Microsoft Corporation is a multinational technology company that was founded in 1975 and operates in a monopolistic competition market. The company makes products that are similar to its rivals' products but are not perfect substitutes. Microsoft has relatively high exit barriers, and it also sets its prices for its products. Microsoft operates in a monopolistic competition market.