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Technology Stocks : MSFT Internet Explorer vs. NSCP Navigator
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To: J. P. who wrote (17927)3/6/1998 1:29:00 PM
From: Bearded One  Read Replies (1) of 24154
 
Peter Huber must have taken Econ 101, but missed Econ 102.

The supply/demand curve is a macroeconomic curve. It represents the supply by a multitude of suppliers. As the demand for anything rises, the number of potential suppliers rise. Thus, the cost of manufacturing the last potato is more than the cost of making the first potato because the high price draws in less efficient suppliers.

Yet all businesses have fixed costs and variable costs. The cost of the first potato is more than the cost for the last potato for a single business. So each individual business has an inverted supply curve, but the conglomeration of all the supply curves of all the businesses is upward.

Thus, an inverted supply curve overall only occurs when there aren't many businesses to supply things. In other words, a monopoly.

Today's issue is the monopolization of desktops by Microsoft and Intel. These companies are said to operate businesses in which the supply curve takes on a strange slant, so that greater supplies are associated with lower prices.
Why should this be so? Because of the huge fixed costs in the business. If it costs you $1 billion to create a new operating system, and nothing to make copies of that software, then the usual rule about more supply requiring higher prices simply doesn't apply...
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