The prospects for competition in the computer software market
Sirchio, Richard John
Young, Richard D.
Master of Arts
In January of 1969, the Justice Department initiated antitrust proceedings against IBM -- the principal competitor in the computer industry. A major contention in the government's suit was that by setting one price for both the computers it manufactured and the programs used with them, the company had inhibited the development of an independent software market. IBM responded to this suit by announcing that in the future it would separately price many of the programs that it offered its customers. This change caused many industry analysts to project the development of a highly competitive trade for computer programs. Despite the threat of antitrust action and the pricing change, IBM still has powerful incentives to control the supply of software to its computer users. Both the software products themselves and the software producer influence the demand curve for hardware. Furthermore, in the software sector, there exists certain structural features which the company can exploit in inhibiting potential competitors' attempts to enter the market. Scale economy barriers and absolute cost barriers are seen to exist in the software sector. Considering these barriers, it is possible to conceptualize, within the framework of a profit maximizing model encompassing multiple complimentary goods, an output determining policy on the part of IBM designed to exclude entry. Thus this analysis indicates that any prediction as to the future competive nature of the software market is questionable.