MICROSOFT’S PRICING STRATEGY

 Running head: MICROSOFT’S PRICING STRATEGY 1
The Analysis of “Microsoft's Aggressive New Pricing Strategy” Using Microeconomic
Theory
Student Name
University
MICROSOFT’S PRICING STRATEGY 2
Outline
I. Introduction
II. The review of the article “Microsoft's Aggressive New Pricing Strategy” in terms
of microeconomic theory
A. Microsoft as a monopolist in software industry
B. Google as the main company’s competitor in the software market
C. Strategies taken by Microsoft to regain the competitive power
III. Conclusion
MICROSOFT’S PRICING STRATEGY 3
The Analysis of “Microsoft's Aggressive New Pricing Strategy” Using Microeconomic
Theory
I. Introduction
Monopolistic power is a profit earner for many companies. Monopolism still
prevails despite the presence of government regulations against the formation of
monopolistic power in the market, which brings deformities into the competitive
scenarios. One of the vivid examples of the monopolistic dominance is Microsoft
(Burrows, 2009). The article “Microsoft's Aggressive New Pricing Strategy”
demonstrates how a monopolist can charge whatever price it deems to, but it is not in
their power to set the quantity of the product demanded. Therefore, a monopolist must
increase prices to gain market share. Further, a monopolist sets different prices in
different places. This price discrimination depends on the demand of the product among
various subgroups of the target customers.
This essay is a review of the article “Microsoft's Aggressive New Pricing
Strategy”, which was published on July 16, 2009 in BusinessWeek regarding the new
strategy that Microsoft has adopted to reduce the prices of its products. Microsoft has a
history of gaining the monopolistic power and bringing in deformities into the market.
However, with the economic recession there has been a decline in demand for the
products of Microsoft, so it took a strategic decision to reduce the prices of its chief
revenue earners, such as the Office software and Windows operating system (OS). The
article “Microsoft's Aggressive New Pricing Strategy” relates the strategies taken by
Microsoft to regain its competitive power and combat the global financial recession. The
paper will analyze the events mentioned in the article in terms of microeconomic 
MICROSOFT’S PRICING STRATEGY 4
theories.
II. The review of the article “Microsoft's Aggressive New Pricing Strategy” in
terms of microeconomic theory
A. Microsoft as a monopolist in software industry
The article “Microsoft’s Aggressive New Pricing Strategy” written by Peter
Burrows (2009) first refers to Microsoft’s pricing strategy as a monopolist. It states that
Microsoft had “enjoyed Olympian profit margins, using its monopoly power to maintain
prices on its software” (Burrows, 2009). The company used its power as a monopoly to
price its products high and gained market share through other measures. A monopoly is
a market condition wherein there is only one seller.
Microsoft has long been accused to be a monopolist due to its dominating share
of the software market, in particular with its Windows OS and Office software. Microsoft
gained a lot of power as a monopolist and enjoyed pricing its products in order to gain
maximum profit. Thus, as a monopolist, Microsoft was in a position to influence the price
of the products and the buyers had no power against the price set by the company.
The article informs that Microsoft enjoyed monopoly power throughout its history.
However, with the advent of financial recession in the global economy, there has been
pressure on the company to meet its revenue targets. The article states that Microsoft
used its “monopoly power” to keep high prices for its software even during “tough times”
(Burrows, 2009). However, the company has been facing competition from other
software giants like Google, and with the economic downturn found itself in a position
wherein it could not use its monopoly power to sustain high prices for its products.
Therefore, the company was forced to decrease the prices of its products, from high-
MICROSOFT’S PRICING STRATEGY 5
end OS Windows and Office products to even the newly launched internet products.
The primary objective of the company was to reduce prices and increase sales
volume, which would rejuvenate their low-profit margins. The CEO of Microsoft, Steve
Ballmer, intended to get into the growth opportunities such as entering very lucrative
and quickly emerging markets in Europe and Asia (Burrows, 2009). Microsoft has
concentrated more on gaining corporate buyers for its software and reducing prices for
individual customers. The primary intent of the price reduction was to increase sales of
original software, mainly to those who would use the pirated software otherwise.
Apart from reducing the prices of the products, it has also altered its revenue
model. As in the case of newly showcased Office 2010, Microsoft has two versions –
one is su