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III. MICROSOFT''S POWER IN THE RELEVANT MARKET

33. Microsoft enjoys so much power in the market for Intel?compatible PC operating systems that if it wished to exercise this power solely in terms of price, it could charge a price for Windows substantially above that which could be charged in a competitive market. Moreover, it could do so for a significant period of time without losing an unacceptable amount of business to competitors. In other words, Microsoft enjoys monopoly power in the relevant market.

34. Viewed together, three main facts indicate that Microsoft enjoys monopoly power. First, Microsoft''s share of the market for Intel?compatible PC operating systems is extremely large and stable. Second, Microsoft''s dominant market share is protected by a high barrier to entry. Third, and largely as a result of that barrier, Microsoft''s customers lack a commercially viable alternative to Windows.

A. Market Share

35. Microsoft possesses a dominant, persistent, and increasing share of the world? wide market for Intel?compatible PC operating systems. Every year for the last decade, Microsoft''s share of the market for Intel?compatible PC operating systems has stood above ninety percent. For the last couple of years the figure has been at least ninety?five percent, and analysts project that the share will climb even higher over the next few years. Even if Apple''s Mac OS were included in the relevant market, Microsoft''s share would still stand well above eighty percent.

B. The Applications Barrier to Entry

1. Description of the Applications Barrier to Entry

36. Microsoft''s dominant market share is protected by the same barrier that helps define the market for Intel?compatible PC operating systems. As explained above, the applications barrier would prevent an aspiring entrant into the relevant market from drawing a significant number of customers away from a dominant incumbent even if the incumbent priced its products substantially above competitive levels for a significant period of time. Because Microsoft''s market share is so dominant, the barrier has a similar effect within the market: It prevents Intel?compatible PC operating systems other than Windows from attracting significant consumer demand, and it would continue to do so even if Microsoft held its prices substantially above the competitive level.

37. Consumer interest in a PC operating system derives primarily from the ability of that system to run applications. The consumer wants an operating system that runs not only types of applications that he knows he will want to use, but also those types in which he might develop an interest later. Also, the consumer knows that if he chooses an operating system with enough demand to support multiple applications in each product category, he will be less likely to find himself straitened later by having to use an application whose features disappoint him. Finally, the average user knows that, generally speaking, applications improve through successive versions. He thus wants an operating system for which successive generations of his favorite applications will be released --- promptly at that. The fact that a vastly larger number of applications are written for Windows than for other PC operating systems attracts consumers to Windows, because it reassures them that their interests will be met as long as they use Microsoft''s product.

38. Software development is characterized by substantial economies of scale. The fixed costs of producing software, including applications, is very high. By contrast, marginal costs are very low. Moreover, the costs of developing software are ``sunk'''' --- once expended to develop software, resources so devoted cannot be used for another purpose. The result of economies of scale and sunk costs is that application developers seek to sell as many copies of their applications as possible. An application that is written for one PC operating system will operate on another PC operating system only if it is ported to that system, and porting applications is both time?consuming and expensive. Therefore, application developers tend to write first to the operating system with the most users --- Windows. Developers might then port their applications to other operating systems, but only to the extent that the marginal added sales justify the cost of porting. In order to recover that cost, ISVs that do go to the effort of porting frequently set the price of ported applications considerably higher than that of the original versions written for Windows.