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Old 05-10-2002, 04:45 PM   #32
Xantar
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A little economics lesson:

To determine if there is a monopoly (or more accurately if there should be an anti-trust case), the U.S. government often uses something called the Herfindahl-Hirschman Index (HHI for short). Calculating the HHI is very simple. Take the marketshare of each company within the market, square those marketshares and add them up. So if there are five competitors in the car industry who each have exactly 20% marketshare, the HHI would be 400 + 400 + 400 + 400 + 400 = 2000. If it were a hundred competitors with 1% marketshare each, the HHI would be 100.

Markets with an HHI of over 1800 are considered "concentrated" (1800 is a purely arbitrary number).

In the OS market, you basically have Windows with 90% marketshare and Mac OS with 10% marketshare. That's an HHI of 8200. The market is monopolistic. But the company that has the monopoly is the one with the largest share.

The anti-trust suit brought against Microsoft wasn't actually for its OS per se. The problem was with the internet browser market, among other things. In a concentrated market (i.e. HHI is over 1800), any transaction that increases the HHI by more than 100 raises anti-trust concerns. In the browser market, there was Netscape Navigator and Internet Explorer. Netscape did have a monopoly at first, but the government wasn't concerned with that because Netscape was the only browser around at the time. At some point, Navigator and IE each had a 50% share of the market. That leads to an HHI of 5000. The marketshares now is more like 95% for IE and 5% for Netscape Navigator. The HHI is now 9050 which is clearly more than 100 higher than 5000. This caught the government's attention. All things might have been forgiven if Microsoft hadn't allegedly used its existing OS monopoly to gain a new one. Getting a monopoly through completely fair competition is fine. And if Microsoft had bundled IE into Windows but failed to capture an extra 5% of the market as a result (thus raising the HHI by 100), the government still wouldn't have paid attention. It was the combination of the two that brought an anti-trust suit on Microsoft.

I just felt like running my mouth off for a few paragraphs. Carry on.
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