Question 3 Judge Patrick Miller has adjudicated that Linex is a relentless and predatory monopolist. He states that that: • Linex established and maintained the “Zook” monopoly by using the "applications barrier to entry," which gives Linex enduring monopoly power. • Linex utilizes independent software vendors to create products that take advantage of new application program interfaces (APIs) built into each release of “Zook”. • Gives computer and laptop makers no choice but to install “Zook”, at whatever price Linex announces. Linex maintains that it has sought only to innovate, serve customers, and protect its intellectual property. Linex says that it is not a monopoly because: • It competes with itself by continually releasing "new and improved" versions of “Zook”. • Technological change will ensure that any dominance it enjoys is fragile. • Already, "middleware" (applications like PureWires) have their own APIs, which new and existing applications might hook on to liberating software developers from the operating system beneath and weakening the applications barrier to entry. a. Do you think the Court is correct in finding Linex a monopoly? Explain. b. Do you think Linex’s counterclaim is correct? Explain c. Explain what is meant by ‘collusion’ and when it is most likely to occur in an industry. d. Assuming Linex is a monopoly, describe the strategy that the company can implement to increase revenue. e. Describe one advantage and one disadvantage of the strategy listed in part (d) above

Microeconomics: Principles & Policy

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter13: Between Competition And Monopoly

Section: Chapter Questions

Problem 9DQ

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Question 3 Judge Patrick Miller has adjudicated that Linex is a relentless and predatory monopolist. He states that that: • Linex established and maintained the “Zook” monopoly by using the "applications barrier to entry," which gives Linex enduring monopoly power. • Linex utilizes independent software vendors to create products that take advantage of new application program interfaces (APIs) built into each release of “Zook”. • Gives computer and laptop makers no choice but to install “Zook”, at whatever price Linex announces. Linex maintains that it has sought only to innovate, serve customers, and protect its intellectual property. Linex says that it is not a monopoly because: • It competes with itself by continually releasing "new and improved" versions of “Zook”. • Technological change will ensure that any dominance it enjoys is fragile. • Already, "middleware" (applications like PureWires) have their own APIs, which new and existing applications might hook on to liberating software developers from the operating system beneath and weakening the applications barrier to entry. a. Do you think the Court is correct in finding Linex a monopoly? Explain. b. Do you think Linex’s counterclaim is correct? Explain c. Explain what is meant by ‘collusion’ and when it is most likely to occur in an industry. d. Assuming Linex is a monopoly, describe the strategy that the company can implement to increase revenue. e. Describe one advantage and one disadvantage of the strategy listed in part (d) above

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