Professor Richard Schmalensee was the former Dean of the Sloan School of Management at Massachusetts Institute of Technology. He was also Microsoft's chief economic witness in its 1999 trial. He argued that Microsoft, while it may have a large market share, is not acting like a monopolist. In particular, it is not exercising its market power. His basic argument is that the current price of Windows 98, of around US$200, is far less than the price Microsoft would charge if it did, indeed, have a monopoly over operating systems.
Microsoft appears to have a monopoly with over 90 percent of the personal computer operating market. Why then would it not be charging a monopoly price? What factors might be diluting its market power?
See if you can come up with good rationales for Microsoft's lower than expected windows pricing.
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