As I mentioned before, I’m currently enrolled in a microeconomics course that makes use of Mankiw’s textbook. I haven’t read much of the book, save for the assigned homework questions and his chapter on oligopolies. He begins with a discussion of monopolies, and asserts that Microsoft is an example of a market monopoly. This claim struck me as quite hilarious for two reasons.
First, Mankiw uses a very narrow definition of market to prove his point. Instead of placing Microsoft in a software market, he claims that Microsoft has a natural market monopoly on Microsoft software, since one can only acquire Microsoft software through Microsoft.*
What Mankiw should say, in order to be precise, is that one can only legally acquire Microsoft software from Microsoft. But this would undermine his point, because what enables Microsoft’s monopoly power is not the natural mechanisms of the market but rather the government, via intellectual property laws. Therefore, Mankiw’s narrow definition fails because it Microsoft’s monopoly power is the result of governmental favoritism and is not a natural market monopoly.
The second thing that makes Mankiw’s claim laughable is that he ignores the broader market of software. There are plenty of alternatives to Microsoft software. Mac, Linux, and Unix are all alternatives to Windows; OpenOffice is an alternative to Microsoft Office; Wii and PS3 consoles and games are alternatives to the Xbox console and games; etc. Mankiw, if he were being honest, would say that Microsoft cannot force anyone to buy any of their software, and is therefore not a monopoly in the sense of being able to make prices.
Of course, if Mankiw were concerned with honesty, he would have to say that Microsoft, though not a true monopoly, does have a limited form of monopoly power via government regulation. Saying this would be heretical to mainstream economics because the natural conclusion of this assertion is that improving market function would require less government, not more, and we can’t have that.
* Of course, this latter claim is patently false as one can easily acquire Microsoft software on a variety of torrent sites.