Ten Principles of Economics - Part 37. Economics is the study of how society manages its scarce resources. In most societies, resources are allocated not by a single central planner but through the combined actions of millions of households and firms. Economists therefore study how people make decisions: how much they work, what they buy, how much they save, and how they invest their savings. Economists also study how people interact with one another. | CHAPTER 16 OLIGOPOLY 371 Justice Department . Testifying for the government was a prominent economist MIT professor Franklin Fisher . Testifying for Microsoft was an equally prominent economist MIT professor Richard Schmalensee . At stake was the future of one of the world s most valuable companies Microsoft in one of the economy s fastest growing industries computer software . A central issue in the Microsoft case involved tying in particular whether Microsoft should be allowed to integrate its Internet browser into its Windows operating system. The government claimed that Microsoft was bundling these two products together to expand the market power it had in the market for computer operating systems into an unrelated market for Internet browsers . Allowing Microsoft to incorporate such products into its operating system the government argued would deter new software companies such as Netscape from entering the market and offering new products. Microsoft responded by pointing out that putting new features into old products is a natural part of technological progress. Cars today include stereos and air-conditioners which were once sold separately and cameras come with built-in flashes. The same is true with operating systems. Over time Microsoft has added many features to Windows that were previously stand-alone products. This has made computers more reliable and easier to use because consumers can be confident that the pieces work together. The integration of Internet technology Microsoft argued was the natural next step. One point of disagreement concerned the extent of Microsoft s market power. Noting that more than 80 percent of new personal computers used a Microsoft operating system the government argued that the company had substantial monopoly power which it was trying to expand. Microsoft replied that the software market is always changing and that Microsoft s Windows was constantly being challenged by competitors such as the Apple Mac and Linux operating
