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E308 Fisher.docx

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Department
Economics (Arts)
Course
ECON 308
Professor
Christopher Green
Semester
Winter

Description
Fisher- The IBM and Microsoft Case: What’s the Difference? The IBM Case: Bundling Software and Services with Hardware - Until 1968 IBM offered systems support and software with its computer systems at no separately stated charge. The government alleged that this bundling forced other hardware producers also to bundle, thus raising barriers to entry into the supposedly monopolized computer systems market. - This was quite untrue. There was a large independent software industry, making it easy for hardware manufacturers to get the necessary software to produce a bundle - IBM’s bundling in the early days was a response to consumer demand, providing a guarantee that computers would function and solve users’ problems - Had consumers not wanted the bundle, IBM’s bundling would have made entry easier- not harder. Bundling Formerly Separate Hardware Components Together - Until the early 1970s, most of the control circuitry for disk drives was located in a separate box (the controller). Such boxes became obsolete when IBM introduced 2 control devices. These devices placed the control circuitry inside the central processor. - The government contended that these introductions were anticompetitive acts designed to extend or preserve IBM’s power over the supposed market for disk drives attachable to IBM systems and to eliminate competition in control circuitry - IBM also introduced new memory devices, far smaller than the old. It then offered its new central processors with a substantial amount of memory included (more could be bought separately) - Government claimed that this was an attempt to stifle competition in the supposed market for memory used with IBM systems - Each of these acts involved obvious innovation. The new devices were faster and cheaper - If the provision of technological improvement were dispositive, however, then anticompetitive bundling, no matter how large its effects, could be justified as being accompanied by consumer be
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