Question

In 2000, The U.S. Government found Microsoft guilty of monopolizing business. But instead of breaking the company in different entities, Microsoft received a fine.

Should the government break Microsoft in many competitive companies? Provide the pros and cons of such action.

Answer 1

If the government decides to break the Microsoft monopoly, then it will face both pros and cons of the same.

Pros:

i) Fall in prices of the commodity

ii) Gains in consumer surplus

iii) Increase in economic efficiency

iv) Increased competition will lead to an increase in innovation

v) more employment

Cons of breaking a monopoly:

i) Fall of export revenue

ii) Fall in Research and development since firms would not be willing to innovate if no benefits in the form of monopoly righta are provided

iii) lower technologucal progress.

Rather than breaking a monopoly, the government should regulate a monopoly - such as by introducing price ceilings and price floors or preventing mergers and acquisitions.