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In the economic model of perfect competition, price equals marginal cost, so margins will be zero, as you say. Though you don't explicitly argue it, it is worth
by 1980phipsi 3y ago
In the economic model of perfect competition, price equals marginal cost, so margins will be zero, as you say. Though you don't explicitly argue it, it is worth making clear that capitalism doesn't mean that the perfect competition model will always hold for all markets. There are plenty of reasons why monopolistic competition could occur, even in a strawman version of capitalism. People could pay attention to branding, for instance. Firms that spend more on branding might be able to maintain higher margins. So even in the strawman capitalism, margins could be high for reasons other than a lack of competition.
In the real world the technology industry does tend to have higher margins than other industries. There might be perfectly normal explanations for that, such as network effects, but there are also government policies that have the effect of reducing competition. For instance, intellectual property laws reduce competition in order to attempt to encourage innovation. The strawman version of capitalism doesn't exist in the real world. Margins can remain high for some time.
That being said, there are competitors for Microsoft's bread and butter products. If you want an alternative to Windows, try Linux. If you want an alternative to Office, try Open Office. For many users, however, they get a better experience with the Microsoft products than these alternatives, even though they are free. Microsoft has to keep making their products better than the alternatives or people will use others (though there are costs of switching and network effects that mean that MS probably doesn't need to have the absolute best product on the market in order for customers to keep using them).
- cubefox 3y agoMicrosoft has no real competitor for Office 365, it's basically free money for them.
- ukuina 3y agoTrue for larger companies, but a whole bunch of SMBs use Google Workspace, and some larger players have both subscriptions.
- Spivak 3y agoRealistically the competition is "not buying it." Nothing in o365 is business critical until you buy into the Microsoft world and make them so. They have solid competitors in every vertical and "but <alternative> isn't as good" is overblown since outside of Office and managing Windows (which is a problem of your own making) they're not best-in-class for much. People vastly prefer Dropbox and Slack when it's on offer. Their offerings are attractive because they're good enough and cheap. If you don't buy into overbearing Windows IT administration world, pick any other email provider, and buy Office licenses ad-hoc for people who care and everyone else gets LibreOffice you can just pretend they don't exist. Unless you go out of your way to buy cheap laptops the difference between macbooks and your favorite dell business longitude isn't as bad as you think.
- mbernstein 3y agoJust to note - you're talking about economic profit (subtracting out opportunity cost) not accounting profit, which is what is being measured in these cases.
- edgyquant 3y agoJust because we can’t guarantee a perfectly competitive market doesn’t mean the government can’t try to ensure one. E.g. you mention Linux as a competitor to windows, yet the government itself is a huge buyer of windows and Microsoft products in general. A role of government should be setting up and ensuring as close to perfectly competitive markets as possible.
- bmicraft 3y agoWhile I agree that governments shouldn't buy Microsoft products, it's not really a competition when nobody there aren't any companies trying to develop or sell linux as a client os for end-users.
- 1980phipsi 3y ago"A role of government should be setting up and ensuring as close to perfectly competitive markets as piasible.[sic]" Your argument is not that different from people who say things like "we don't have perfect competition, that is a market failure, the government must fix it". As I said before, perfect competition is a model. It isn't some utopian ideal. The argument as I phrase it is basically the Nirvana fallacy, and I don't think I'm mischaracterizing your views. I would be more sympathetic to arguments like: "anti-competitive corporate behavior, like the formation of monopolies or cartels or other means that reduce output and raises prices, is not socially optimal. The government should prevent such behavior" In other words, I think you adopt a position that tries to prove too much. This merger may be bad (or it may be good, I don't really know), but you don't have to rely on the argument that if competition isn't perfect then the government should step in in order to oppose it. That's not a good argument.