Apple and Microsoft operate in Oligopolistic markets. An equilibrium in perfect

Question

Apple and Microsoft operate in Oligopolistic markets.

An equilibrium in perfect competition means that all firms sell the product at the same price. This usually happens when the firms produce a homogeneous product. Homogeneous products can also be called commodities.

In oligopolistic market, equilibrium is a slightly different concept. It is called Nash equilibrium.

Companies usually choose a course of action that gives them the maximum payoff. When companies are targeting the same set of customers, each of them choosing a course of action that maximises its own payoff, leads to price wars that eventually proves loss making. The best thing that companies should do in such situations is to collude rather than compete. However collusion is illegal.

Government usually intervenes in areas which are absolute necessity for the general population. Areas like food, clothing, shelter, medicine are such markets in which government usually intervenes. Mobiles, software, etc. are not a necessity. Hence the government will never intervene in such areas.

So to answer the question, the market will work towards equilibrium on its own wherein the top few companies will hold more than 60% market share. however due to differentiation in products, price variations will remain.

Explanation / Answer

I agree that Microsoft isn’t as powerful as it once was and we wouldn't consider it a monopoly today. Apple has sure given Microsoft a fun for its money and Microsoft seems so far behind when it comes to areas like phones, search, etc. Does this mean that the market can work towards equilibrium on its own, without government intervention?

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