Microsoft’s Ballmer Increased Consumer Surplus?

Matt Yglesias of Slate Moneybox makes the following interesting claim regarding Consumer Surplus:

As I wrote when his retirement was announced, Steve Ballmer is an American hero who plunged Microsoft’s enormous Office/Windows profits into futile efforts to compete with Google, Sony, Apple, and others. Very few of those Ballmer investments paid off for Microsoft shareholders, but they generated huge amounts of consumer surplus by preventing other firms (and especially Google) from becoming predatory monopolists. The clear risk is that post-Ballmer Microsoft will be run along principles of narrowminded shareholder value maximization and the world will lose out as a result.

Does this make sense? Under what assumptions? More generally, who is Microsoft’s greatest competitor? As we’ll read in Ronald Coase, under certain conditions you can have a single supplier and yet have price close to the competitive marginal cost level.

3 thoughts on “Microsoft’s Ballmer Increased Consumer Surplus?

  1. This statement makes sense under the assumption that Microsoft is a competitor with Google, Sony and Apple. However, I do not think that this assumption is necessarily correct. Microsoft is primarily a software company. They have certain products that compete with Sony and Apple, however the cost structures of the four companies in the example are most likely extremely different. Therefore, although these technology companies compete on some level with each other, it is probably not soley Microsoft who created the consumer surplus by preventing google from having a monopoly.

    • Think however about MS as a multi-product company – the competition (if any) is in specific markets, not one entire company against the other. And isn’t Apple selling software in a neat package? Other than the design, the hardware itself isn’t all that special – and designs can be emulated (though not copied – there’s a big lawsuit over this, with Samsung serving as a proxy for MS).

Leave a Comment!