Considering that operating systems and processor chips are perfect complements (
ID: 1194606 • Letter: C
Question
Considering that operating systems and processor chips are perfect complements (you can't use one without the other), is the fact that Intel dominates the market for processors beneficial to Microsoft or not? Considering that operating systems and processor chips are perfect complements (you can't use one without the other), is the fact that Intel dominates the market for processors beneficial to Microsoft or not? why?Would it be in Microsoft's best interests to encourage AMD and other processor manufacturers to compete with Intel? Why or why not? (3 points) How might Microsoft promote AMD's processors, if it wanted to?
Explanation / Answer
It is considered as operating systems and processors chips are perfect complements that means both commodities are needed to satisfy a particular consumption. So price of any one of the commodities increases consumption of that and another commodity will adversely affected.
It is not possible to satisfy that need for maximum consumers as they are not able to purchase one of these commodities due to high price. So the consumption of another commodity will also decrease because without the other one satisfaction will not be fulfilled.
Intel dominates the market for processors that means it has monopoly power in the market and can enjoy the price making decision power in the market. In this case Intel has tendency to set the price of processor high above the marginal cost. So maximum consumers who have low purchasing power will go out of the market that means they will not buy processors in the market. If they do not buy processors then they do not need to buy the operating system because of the complementary goods property. So Microsoft incurs losses due to the low sale in the market.
It would be Microsoft's best interest to encourage other producers of processors like AMD. Microsoft will encourage those competitors of Intel to compete with it so as to reduce the market power of Intel. It is not profitable for Microsoft to face this challenge.
If there are other suppliers of processors in the market then price of the product will decrease and quantity will increase. So now consumers are ready to buy processors in a cheaper rate and also will buy Operating system. So sale of Microsoft will increase.
Another reason for encouraging competition in market is to control the market share of the computer or smart phone consumption.
Microsoft encourages AMD by promoting it in the market. Microsoft can introduce new companies by merging with them or by offering new proposals in the market. Microsoft can announce that it will supply new processors with operating system at a cheaper rate so as to increase the total product in the market. AMD need help to promote its new product in the market as it has powerful competitor Intel.