But in case of Microsoft operating the market is totally dominated by Microsoft. Based solely on market share, Microsoft appears to have a near-monopoly in operating systems for personal computers yet Microsoft priced the Windows OS very smartly and kept it at bare minimum and thus succeeded in capturing in the market. The law of demand tells us that as the price of a commodity falls, the quantity demanded increases and vice-versa. But the law is silent on the extent of increase in demand as a result of decrease in certain percentage of prices. That means the law of demand tells us only the direction of change, but not the rate which the change takes place. To know about the rate of change we should know the 'price elasticity of demand'. Elasticity of demand can be defined as the "degree of responsiveness of quantity demanded to a change in price." It thus represents the rate of change in the quantity demanded due to a change in price.
Now in case of Microsoft it can be said that, if we treat PCs as a single homogeneous commodity, then Microsoft's pricing of Windows was 'not' consistent with its status of a monopoly over personal computer (PC) operating systems. Therefore Microsoft started with such penetrative pricing that consumers had no option but to go for it. The company priced Windows as low as it can because of several types of substitution;
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