Study Guide

Definition of Monopoly

A market condition in which there is only one seller of a commodity. By virtue of control over supply, the seller exerts nearly total control over prices. By adopting laws excluding competition from an industry, governments have created public service monopolies. These may be public monopolies (e.g., the U.S. Postal Service) or publicly regulated private monopolies (e.g., power and light companies).

Control of a supply by a few producers, who often act to restrain price competition, is known as an oligopoly. In the U.S., most forms of monopoly and, to a lesser extent, oligopoly are illegal under Antitrust Laws. The government grants monopolies in the form of patents and copyrights to encourage the arts and sciences.

  1. Microsoft
  2. FTC vs. Intel
  3. B2B Exchanges
  4. Airline reservation systems
  5. Justice Department vs. IBM
  6. U.S. vs. IBM Corp. and Storage Technology Corp.
  7. U.S. vs. Computer Associates


  • History

    A very engaging debate about FTC's complaint against Intel. One side is a former attorney for Intel, the other, the director of the FTC's Bureau of Competition. Both summarize some of the issues at hand. Such as when does the line of agressive competition cross the Sherman Act of unfair competition. FTC claims that Intel is favoring those companies that don't partner with competitors allowing them to new arcgutectures, which often results in a time-to-market advantage. Also Intel has withheld design information from three OEM's one including computer giant Compaq. Intel claims they have the right to withhold thier intellectual properties to due to agreements with the companies.

  • How valid is the FTC's arguement?

    Some feel the rising success of the Advanced Micro Devices(AMD), gives Intel a stronger arguement. January 1999, an article surfaced that showed how AMD's Processor was outselling Intel's. Also soon after AMD was first to market with the first 1Ghz processor. Then AMD later got a lucrative deal with Gateway. Most AMD's success was after the FTC's settlement with Intel, however just how valid was the FTC's argument.

    On March 8, 1999, The FTC and Intel corp have reached a partial settlement in the FTC's antitrust case. If approved, the settlement will likely provide a clearer interpretation of U.S. intellectual property laws. While neither side would comment on details of the proposal, Intel spokesman Howard High said discussions between Intel and the FTC focused predominantly on the interpretation of laws governing intellectual property. Many analysts believe that Intel has come away unscathed. And that it made many of the changes necessary before settlement was even made. Intel did not want to follow the same road as Microsoft and decided instead to concentrate on keeping their hold on the market.

  • Events

    • Chronology of Intergraph's lawsuit against Intel for anti-competitive behavior Intergraph

      (Intergraph claims that Intel refused to continue giving Intergraph development updates on new technology because Intergraph refused to liscense its 'Clipper' technology to Intel. The FTC claims that Intel used its market power as the dominant m icroprocessor producer in the computer industry to muscle Intergraph, Compaq, and Digital Equipment into its own liscensing terms. The FTC states that this is a violation of anti-competitiveness laws and that Intel must be held accountable for its monopo listic actions. Intel has responded that although it is a tough bargaining company, it has a well known rigorous internal policy to remain well within the antitrust laws.)

    • Federal Trade Commission (FTC) begins investigation
    • Intergraph claims that Intel tried to acquire rights to Intergraph's patents on the architecture behind the cache memory management on the processor. Intergraph further states that when they refused to comply to Intel's requests, Intel began to take measures to pressure Intergraph through its powerful position in the micrprocessor market. Intergraph then filed suit against Intel for anticompetitive practices at which point the FTC became further involved. 
    • The Federal Trade Commission charges Intel with utilizing its monopolistic powers to deny Digital Equpiment, Intergraph, and Compaq access to key technology because they would not liscense their patents to Intel. 
    • Intel claims they have the right to their confidential information and that they are protected under business laws as well as the First Amendment to cdistribute it to anyone they choose under any circumstances they choose. 

B2B Exchanges

  • One growing trend in business is the idea of business-to-business exchanges of information and sometimes, even goods and services. The idea behind these exchages is that the companies involved can specialize further, and trade information. Thus, the efficiency of the industry as a whole should be increased and prices should drop.
  • So, what's the ethical problem? Well, what if a company isn't invited to the exchange? Say, for instance that there are three big manufacturers of Widgets, let's call them A, B, and C. Well, there is also a little Mom & Pop's Widget maker, namely D. Well, if A, B, and C are all part of Super-Big-Widget Exchage, but D isn't big enough to be included, then A, B, and C, could possibly engage in some etically poor business practices, which might lead to their having an unfair advantage over D. 
  • Most B2B exchanges are being very careful not to violate any antitrust laws, and are even training their employees on how not to violate those laws. For more information follow the links under this topic on the index of topics page.

Airline Reservation Systems

  • The recently stepped-up U S. Justice Department investigation into possible price fixing among major airlines make Feds wonder if all's fair in the air. 
  • Around 90 percent of all U.S. flights are booked through Apollo, Galileo, Worldspan, Sabre, Amadeus and System One, the largest airline computer reservations systems used by travel agents to book flights. 
  • With the rapid development of airline booking sites on the World Wide Web, however, it's just a matter of time, say some airline industry analysts, before a significant number of consumers begin bypassing travel agents and the computer reservat ions systems altogether to book flights directly with airlines via their own personal computers. 
  • Airline reservations systems face Internet threat 

Justice Department vs. IBM

  • History

    The government filed suit against IBM in January 1969, accusing the company of monopolizing the market for general purpose digital computers, systems, and submarkets for peripherals in violation of section 2 of the Sherman Act. The trial began on May 19, 1975. U.S. v. IBM went on to last more than a decade and spanned over 700 trial days, 950 witnesses, 17,000 exhibits, and 100,000 pages of court transcript. The dispute came to a sudden end in January 1982 when the government unexpectedly dropped its complaint. Assistant Attorney General William Baxter explained that he had reviewed the case and determined it was "without merit." This was basically a failure for the U.S. Government, but it caused people to question the anti-trust laws.

  • For IBM and Against the Anti-trust

    A parade of economists testified the government had no case. Some concluded antitrust laws were obsolete and ineffective in overseeing today's technologically progressive industries. Others criticized the government's economic analysis as unsound. One MIT economist went so far as to claim "...the economic theories advanced by the Antitrust Division and its economists were not very sensible. This is not simply a matter of disagreement between opposing experts over the facts or the application of economics to close questions. The government's economic case often lacked coherence; some of the propositions could not have been true or relevant under any reasonable interpretation of the facts."

  • David Boies, Justice Deptartment's Lead Attorney Boies began with the department's antitrust division in 1997. Currently a partner in the firm of Boies & Schiller LLP, Boies has tried a number of cases for the Justice Department, including U.S. v. IBM, in which he defended IBM against the government's allegation of monopolization in the computer-systems business.

  • Why the failure?

    IBM was supposed to be a monopolist, but the relevant markets were never clearly defined. When asked, different government lawyers gave different answers. Nor was it clear what specific IBM conduct was supposed to violate antitrust law. An economic autopsy of the case written later by some of IBM's expert economists noted that the government assumed that the company was a monopolist even though it did not act like one. The government dealt with this embarrassing inconsistency by "distort[ing] IBM's competitive acts into 'anticompetitive' ones. Nothing is more revealing about the government's case than its constant complaint of low rather than high prices as the symptom of monopoly."

  • Theory on the Results of the anti-trust case

    Some experts point at the US v. IBM case, which lasted over a decade, as evidence that antitrust assaults can distract a company's leadership. The computer giant faltered in the early 1980s and missed a good portion of the PC revolution.

U.S. vs. IBM Corp. and Storage Technology Corp.

  • What the Storage Technology Corp. does

    The IBM Enterprise Storage Server (ESS) is a disk storage system specifically targeted to large, multi-platform, networked environments. Based on IBM's Seascape Storage Enterprise Architecture, it provides the enterprise with a scalable, high performance data storage and access solution that interfaces directly to multiple hosts and platforms and can be centrally managed through a Web-based interface.

U.S. vs. Computer Associates

  • History

    As soon there are signs of Monopoly forming the FTC steps in quickly puts an end to it. For example Computer Associates who owns 90% of the market. CA is the world's largest independent vendor of computer software for mainframe computers and a leading producer of mainframe computer systems management software. It has a number of times attempted to acquire smaller competitors to own 99% of the market. Computer Associates has tried to acquire Platinum and Legent. Platinum is a direct and substantial competitor to CA in a number of mainframe systems management software products. CA and Legent also are leading competitors in the emerging market for "cross-platform" systems management software for computer installations where a mainframe computer is linked together with other types of computer "platforms" (such as midrange computers or networks of workstations or personal computers). Acquiring both companies would have without a doubt been a monopoly. But what about cases such with IBM and Intel where the lines of monopolistic behavior is slightly blurred.