Monopolies wield significant power in markets, often employing tactics to maintain their dominance. These strategies, like tying and bundling, can limit competition and consumer choice. Understanding these practices is crucial for grasping how monopolies operate.

The legality of monopolistic practices isn't always clear-cut. Some tactics may be legal if they have legitimate business reasons, while others are illegal if they harm competition. Real-world examples, like Microsoft's antitrust case, show how these issues play out in the business world.

Monopolies and Anticompetitive Behavior

Restrictive Practices

• Monopolies engage in restrictive practices to maintain market power and limit competition
• Tying requires customers to purchase a second product to buy the first product (software company requiring hardware purchase to use software)
• Bundling offers multiple products together as a package, often at a lower price than purchasing separately (cable company offering TV, internet, and phone services at a discounted rate)
• Exclusive dealing requires buyers or suppliers to only deal with the monopoly and not competitors (beverage company requiring restaurants to only sell its products)
• These practices make it difficult for new competitors to enter the market and limit consumer choice

Legality

• Tying, bundling, and exclusive dealing can be legal or illegal depending on circumstances
• Legal tying and bundling occur when tied or bundled products are closely related with legitimate business justifications (car manufacturer including tires with new car purchase)
• Illegal tying and bundling are used to maintain or extend a monopoly and limit competition (dominant software company requiring web browser purchase to use operating system)
• Legal exclusive dealing involves short-term arrangements that do not significantly harm competition (small retailer agreeing to exclusively sell a particular brand for a limited time)
• Illegal exclusive dealing involves long-term arrangements that substantially foreclose competition (dominant pharmaceutical company requiring pharmacies to only sell its drugs)

Real-World Examples

• Microsoft antitrust case (1998)
  • Microsoft bundled Internet Explorer web browser with Windows operating system
  • Allegedly used this strategy to maintain operating system monopoly and extend it to web browser market
  • Courts found Microsoft's practices anticompetitive and ordered behavior change
• Apple App Store policies
  • Apple requires developers to use its in-app purchase system for digital goods and services, which includes a 30% commission
  • Some argue this abuses Apple's market power in iOS app market, limiting competition and innovation
  • Others claim it legitimately maintains platform quality and security
• Amazon's treatment of third-party sellers
  • Amazon sells its own products alongside those of third-party sellers on its platform
  • Some third-party sellers allege Amazon uses their sales data to create competing products and prioritize its own listings
  • This could potentially abuse Amazon's e-commerce market power, limiting competition and harming small businesses