Micro Monopolies

People love telling me that Microsoft (specifically with regards to the Windows operating system) is a monopoly. Their evidence usually amounts to something along the lines of "everyone I know has a PC" and "Microsoft has such-and-such share of the market."

People don't say that nearly as much as they used it.

Part of the reason is the rise of the Mac. With countless commercials detailing why Macs are better than a PC, more people are making the switch each year. Now a new contender is becoming the standard: Dell's starting to use Linux-based Ubuntu 7.04 for the operating system of some computers.

Most economists agree monopolies are inefficient: they can charge a high price (or sell as a low standard) and make what we call "monopoly profits." But what the past years are teaching us is that even if Microsoft was some sort of monopoly, it doesn't really matter. As long as people are able to enter the market, new firms will rise up to grab a bit of those monopoly profits for themselves.

If the attraction of such profits is a major motivator of innovation (and I think it is), then maybe a monopoly isn't so bad. As long as people are able to get those extra profits and others are allowed to try to bid them away with their own inventiveness, we get a constant stream of better products. Things keep getting better.