Page 551 - Economics

CONFIRMING PAGES

CHAPTER 24
483
Technology, R&D, and Efficiency
CBS team up to launch Prodigy Services, the first software producer. Sun Microsystems introduces Java,
online computer business. an Internet programming language.
1985 Microsoft releases its Windows graphical interface 1996 Playing catch-up with Netscape, Microsoft develops
operating system that improves upon MS-DOS. Ted Microsoft Internet Explorer and gives it away free.
Waitt starts a mail-order personal computer business 1999 Netscape’s market share plunges and it merges with
(Gateway 2000) out of his South Dakota barn. America Online. More than 100 million personal
1990 Microsoft introduces Windows 3.0, which, like computers are manufactured worldwide this
Macintosh, features windows, icons, and pull-down year alone.
menus. Apple sues Microsoft for copyright infringe- 2000 Sixty percent of American households have access to
ment. the Internet either at home or at
1991 The World Wide work, and the Internet spreads
Web (an Internet sys- worldwide. Internet commerce
tem) is invented. in the United States reaches
1993 Intel introduces its $300 billion, and an estimated
first of several Pen- 1.2 million U.S. jobs are Inter-
tium chips, which net-related.
greatly speed up com- 2002 A Federal court of
puting. The courts re- appeals finds that Microsoft has
ject Apple’s claim that a monopoly in operating system
Microsoft violated its software for Intel-compatible
copyrights on its Ma- personal computers and has
cintosh operating sys- maintained its monopoly
tem. through illegal actions aimed at
1994 Marc Andreessen starts up Netscape Communications thwarting threats from rivals. The court imposes a set
and markets Netscape Navigator, which quickly be- of specific restrictions on Microsoft’s anticompetitive
comes the leading software browser for the emerging business practices.
Internet. David Filo and Jerry Yang develop Yahoo, a 2005 Google, the innovative Internet search company, be-
system for locating material stored on the Internet. comes the “darling” of Wall Street as its share price
1995 Microsoft releases the Windows 95 operating system, rises from $85 at its initial public offering (IPO) in
which becomes the dominant operating system of August 2004 to more than $400 at the end of 2005.
personal computers (90 percent market share). Micro- Source: Based partly on Diedtra Henderson, “Moore’s Law Still Reigns,”
soft is now well established as the world’s leading Seattle Times, Nov. 24, 1996, augmented and updated.

ignores the difference between the legal freedom of entry In short, while innovation in general enhances eco-
and the economic reality deterring the entry of potential nomic efficiency, in some cases it may lead to entrenched
newcomers into concentrated industries. monopoly power. Further innovation may eventually
3
destroy that monopoly power, but the process of cre-
That is, some dominant firms may be able to use strategies
such as selective price cutting, buyouts, and massive adver- ative destruction is neither automatic nor inevitable. On
tising to block entry and competition from even the most the other hand, rapid technological change, innovation,
innovative new firms and existing rivals. Moreover, rent- and efficiency clearly are not necessarily inconsistent with
seeking dominant firms have been known to persuade possession of monopoly power.
government to give them tax breaks, subsidies, and tariff
protection that strengthen their market power.

3 Walter Adams and James Brock, The Structure of American Industry, 10th
ed. (Upper Saddle River, N.J.: Prentice Hall, 2001), pp. 363–364.
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