Role of Government Minimum Wage Term Paper

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These issues apply to many companies in the new economy, but this discussion will focus on Microsoft, a major target of the government for anti-trust violations.

The network effects theory holds that products are more valuable to consumers the more widely they are used (Stenborg). This is certainly true of Microsoft Windows, an operating system that received the widest range of hardware and software compatibility as its popularity soared. Further, as businesses invested time and money to train their employees in Microsoft products, they continued to upgrade to the same software to maximize productivity.

Firms in new economy industries must invest great sums of money to develop their products, either in upfront research and development or in physical or virtual networks to create and deliver products (Stenborg). Microsoft is a natural monopoly business (Spaudling). Initially, it is expensive to produce software, but it is very cheap to make copies. The marginal cost of Microsoft's software is virtually zero, so average total costs decline with each copy sold. As the company established its lead, it become more difficult for competitors to compete against it with lower prices, sine their own costs have to be recouped with fewer sales.

In the new economy, innovation produces a winner takes all or almost all of the market (Stenborg). This happens because of the network effect discussed above which makes it easier to attract additional customers with more attractive products. and, making more sales allows firms to reduce their average costs and to make high profits while charging low prices.

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In fact, in the new economy network effects and scale economies are so strong that some companies will give away their products to gain market penetration and influence standards (Stenborg). This is in sharp contract to the traditional function of a monopoly that tries to restrict sakes and raise prices. In the antitrust suit, Microsoft was accused of predatory pricing (Spaulding), but it was merely acting as a new economy business that was trying to expand its presence in the operating system and browser markets by offering low prices and by giving away its browser software.

Finally, Stenborg says that monopolies generate innovation more than competition. As in the traditional economy, monopolies have huge cash flows for research and development and face less market uncertainty. In the new economy, however, firms find monopolistic rents more attractive than competitive ones. Microsoft is known for constantly introducing new products and innovations to maintain its position in the market.

The anti-trust pursuits against Microsoft were not because this company was harming the consumer who was receiving low prices and innovative products from this new economy type firm. True, Microsoft is a monopoly, but a different kind of monopoly than in the old economy and it should be considered a market success rather than a market failure that should be regulated. Supports of anti-trust penalties were really just trying to protect other producers who couldn't compete......

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