Before a company gets to the top, it must start with a good idea to fill a potential market. Then the company designs a product to fill that need, using marketing to convince consumers of both the need and why the product is best suited to fill that need. Building up from the beginning requires a lot of effort and hard work. The company must be innovative in both design and selling techniques. Because many companies are competing with similar products, a company must aim to make its product the best product in the industry.
As a company grows and the market share develops, it soon begins to realize its own success. The money pours in, investors are happy, and everyone starts to want a little more. When the company controls more than 70% of a market, it knows the market is safe from serious competition. Although it has to stay enough on top so that no other company can come in and take over, the company does not have to worry about competition on a daily basis. No one is going to unseat the product very easily.
Now, having a dominant market share and bringing in billions of dollars in revenue just doesn't seem to be enough. The company asks: How can we get more customers? How can we make them keep paying more? Since the company now controls the market for their product, they are not going to get many more customers in a area where the potential for more customers has already been exhausted. They need to look outside of their current products and see what else they can buy, market, make, and control.
We fear monopolies when they get to the top and begin to stagnate, reducing innovation and leaving us with the same product we had many years ago. We fear monopolies when we can only buy one company's product (that isn't all that good) because no other company could afford to compete. We fear when they get to the top and start to take over other markets with lesser products. We fear monopolies when they abuse their dominance to charge outrageous prices for limited services.
In the late 1800s, people feared the monopolistic railroads. The railroad magnates controlled the major means of transportation of goods and people across the country. Because there were not that many rail lines, the railroads could control prices in the market. Farmers could not transport their goods from the fertile West back to the population centers. If the farmers did not pay the exorbitant sums, then they had no other way to get their goods to where they could sell their wares. Finally, in the 1870s, the farmers began to revolt against the railroad monopolies in what was known as the Granger Revolution.
Not only could the railroad magnates control the prices of shipping, but they controlled many other related markets too. With the huge stores of capital generated from high prices, the railroad companies were able to branch off into other fields. For example, the construction of the track system was highly reliant on steel companies. If these groups raised their prices, the railroad would be forced to pay the high rates. To avoid this, the wealthier owners simply purchased their own steel companies. By owning all intermediate steps of the costruction of railroads, the corporations would not have to be subject to the whims of any other company. Eventually, the largest of the railway owners controlled steel mills, oil refineries, copper plants, and lumber companies.
In many ways, the fear of Microsoft today is similar to that of the railroads. Like the railroad companies, Microsoft controls a major backbone of the industry. Rather than transportation, Microsoft controls the operating systems of computers which no computer can run without. Using their market share of the operating systems, Microsoft has attempted to parlay its success into other markets. Microsoft has successfully done so with its major applications such as Word, Excel, and Office. These products rose to market dominance after Microsoft's own Windows became the leading operating system. (see development of Microsoft)
More recently, Microsoft attempted to use its dominance of the operating system market with its release of Windows 95 to enter the online service market. Microsoft bundled Windows 95 with The Microsoft Network and also attempted to disable the competition. This was similar to the railroads starting a new steel mill and giving their consumers a special deal on steel from the mill to get their mill on demand. Through this process, the monopoly doesn't really give the consumers a fair chance to test the new market, but almost forces them to buy into the whatever product the monopoly sells. Because it comes as part of the package, Microsoft users will test Microsoft Network when they install Windows 95, rather than exploring the other online services.
Along with using their current products to dominate new markets, monopolies sometimes take over markets where they aren't competitors. Because the monopoly has so much revenue, the cost of taking over another company is minimal. But this means that the competition in the new market will be reduced considerably. Microsoft was a player in the personal finance manager market with their product, Microsoft Money. But Microsoft's market share was small compared to Intuit's. So Microsoft decided to buy Intuit's Quicken rather than trying to compete with it. This would mean that Microsoft would have automatically controlled another market, that of personal finance managers, which is a large market for home products.
When a company is in fierce competition for a market, they are constantly working to make sure their product is the best and most innovative. But once they control the market, they do not need to work nearly as hard. Microsoft Word 6 is a fine example of a product that is good, but seriously flawed. The first several versions of Word for Macintosh and Windows were great products, won many awards, and so Word became the leading word processor. Now that it controls over 60% of the market share, Microsoft comes out with new versions of Word that clearly lacks the grace of previous versions. But people upgrade anyway, because there is not a viable alternative.
Monopolies create a lot of fear in consumers because they mean that even in this capitalist society, people cannot get the best products for their money. The monopolies slow down innovation and efficiency, buying other companies when they do not have the leading product, and raising prices to make more money.