An interesting example of strategic behavior comes from a 1997 article about Microsoft’s investment in Apple (New Straits Times, 1997). The article is included in the Required Readings list. Facing tough anti-trust scrutiny from government agencies, Microsoft provided financial support to Apple in order to ensure Apple’s survival and, therefore, to ensure that competitiveness in the industry remains. Moreover, the partnership with Apple provided an additional market for Microsoft’s products – the MS Office and the IE products were to be bundled with the MAC OS as one of the conditions for this financing. Discuss this case in the context of market structure and strategic behavior. What market structure do these firms operate in? Why did Microsoft need to preserve competitiveness in the industry? What was Microsoft afraid of in the event that Apple did not survive?
Further, do you think Microsoft regrets taking action in light of Apple’s performance today?
Strategic Behavior Oligopolies
Behavior, of firms, is influenced by the market structure in which they operate. For instance, the pricing strategy of a firm is determined by the competitiveness or shape of the market demand curve. Also, economies of scale and barrier to entry also influence a firm’s strategy and behaviors. Therefore, to understand the strategy and behavior of a firm, it is essential to understand the market structure in which those firm functions.
It is quite evident that Microsoft and Apple form Oligopoly market for operating systems, as in most of the computers either Microsoft or Mac is installed. There are other operating systems too; however, Microsoft and Mac are preferred mostly by individuals/people. Also, the economies of scale are large, and a barrier to entry is high, which are attributes of oligopoly market. Furthermore, both firms have collaborated in the past for strategic reasons, which is a unique feature of oligopoly market (Clifford, 2017).
As there were only two large firms in the market, which could influence the market strategy of each other, therefore, the relevance of competitors was unusual. The competition between these two competitors had acted as an incentive to improve or evolve, which was why Microsoft had decided to support or fund Apple. Another reason was that Microsoft was not in a position to capture the entire market, which also convinced Microsoft to support Apple.
Some assert that the legal complications (such as anti-trust law), which Apple’s collapse might have yielded, could have strongly and adversely affected Microsoft and its profit. Therefore, Microsoft took measures to ensure Apple’s survival, which benefited Microsoft in a number of ways. For instance, Microsoft imposed partnership with Apple, which allowed Microsoft to sell various kinds of products through MAC. It is apparent that Microsoft also benefited from a $150 million investment; however, the dividends of investing in Apple were not huge, but rather moderate (Heisler, 2014).
References
Clifford, C. (2017, August 29). When Microsoft saved Apple: Steve Jobs and Bill Gates show eliminating competition isn’t the only way to win. Retrieved from https://www.cnbc.com/2017/08/29/steve-jobs-and-bill-gates-what-happened-when-microsoft-saved-apple.html
Heisler, Y. (2014, 20 5). What ever became of Microsoft’s $150 million investment in Apple? Retrieved from https://www.engadget.com/2014/05/20/what-ever-became-of-microsofts-150-million-investment-in-apple/
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