One monopoly is better than two: Antitrust policy and Microsoft

The Department of Justice recent case against Microsoft is that it should n ot be allowed to aggressively maintain control over the internet browser ma rket with the objective of preventing the internet from becoming the platfo rm that could ultimately destroy Microsoft's operating system market. The a im of this paper is not to attack the Department of Justice case. Rather, i t is to argue that for consumers one monopoly dominating both the operating system and applications is better than two separate monopolies. In our mod el we integrate Cournot's theory of two goods that are jointly used in the production of a third composite good with the fixed-proportion model. Utili zing our model we develop a possible explanation for Microsoft's actions - protection of its monopoly profits in the operating systems package market. Additionally we show that the price of the final product is lower if one f irm monopolizes all markets. Consequently, the ordered split-up of Microsof t by Judge Thomas P. Jackson, aiming at creating two separate companies, on e that will produce the windows and the other the operating systems, will h arm consumers.