Suppose OS software market is monopoly and Microsoft is the only one OS seller.

Question

Suppose OS software market is monopoly and Microsoft is the only one OS seller.
On the other hand, the software retailing market is perfectly competitive market and Best Buy is one of the resellers.

Supppose Microsoft sells Widnows OS to retailers such as Best buy for $190 per copy. If Microsoft were to raise that price to $290, which of the following would happen? and Why?

1. Retailers would not change the number of copies of Windows they order from Microsoft.

2. Retailers would increase the number of copies of Windows they order from Microsoft

3. Retailers would reduce the number of copies of Windows they order from Microsoft

4. Retailers would cancel all their orders of Windows

Explanation / Answer

Hi,

The correct answer is option 1.

Retailers would not change the number of copies of Windows they order from Microsoft

Explanation – Since Microsoft is the only seller of OS in the market, the retailers will have no other option than to buy it from the MS. However, the result here will also be dependent on the elasticity of the demand for computers. If the demand for the computers is highly inelastic then the price would have no affect on the demand for the OS. On the other hand, if the demand is elastic, the increase in price would cause a decrease in demand for the OS.

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