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An Analysis of Software Price: Apple vs. Microsoft

We all know what it feels like to have limited options. A broad user base for a product can help improve the amount of documentation that exists to help troubleshoot the use of the product. At the same time, if a product begins to dominate the market, it deincentivizes the need to constantly improve to keep up with competition and is oft accompanied by an increase in prices.

A famous example, is Microsoft’s domination of the PC market. As we can see in the graph below, with almost a 90% share of the market as measured by OS use, Microsoft has a firm grip in the business.


Since Microsoft software often ships with their product, programs such as those in Microsoft Office Suite have become prevalent. In fact for the sake and convenience of compatibility, Word, Powerpoint and Excel document formats have essentially become a industry standard. Such an instance of a near-monopoly isn’t something new. In fact, Microsoft was forced to split in 1999 when it was ruled that its monopoly left no chance for rivals to compete. However, the consequences of Microsoft’s monopoly are still felt nowadays, as manifested in the disparity between market prices between their products and Apple’s products for similar software. As an example, one copy of Microsoft Word is listed as $109.99  on Microsoft’s website, while Apple’s counterpart, Pages, is listed as $19.99 on the Mac App Store.

There are many reasons for this six-fold discrepancy. However, it is reasonable to attribute this to the notion of bargaining power in networks. If we model the corporations as nodes that follow the one-exchange rule with respect to customers, then Microsoft has more outside options relative to Apple due to its having more nodes. As such, Microsoft will have more bargaining power in the network, and will receive more compensation in the Nash bargaining solution. Other factors to be considered however, potentially in a future post, involve the loyalty of customers (i.e. given the fact that some customer chosen at random uses macOS, there is a higher probability that they will be using Apple office software. In other words, the OS choice is not independent of the choice of office software).


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October 2016