The Economics of Software
The software industry possesses several features that suggest that
software -- especially operating system software -- is a natural monopoly,
meaning that the natural tendency of the market will be for a single firm
to emerge as dominant. In particular, the software industry is
characterized by increasing returns
to scale and positive network
externalities. Furthermore, Microsoft has developed monopoly power in the
personal-computer operating system market and leveraged that power to
develop large market share in desktop applications and PC server
software.
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