The reason should be found in the monopoly market power of Microsoft and Intel. In other words, the average cost of production decreases as more and more products are sold. An efficient market result in such a case is to allow one firm to produce all necessary output in order to achieve the maximum economy of scale. Competing firms duplicate fixed costs unnecessarily and result in waste. Therefore, Microsoft's dominance in operating system software is an efficient result due to the characteristics of the software industry.
Economies of scale refer to gains or losses in production cost as output is increased.
Typically, the total production costs first decrease because fixed costs such as buildings and management expenses remain constant, and then increase as inefficiencies kick in when the output level goes beyond the optimal level, resulting in the typical U-shaped average cost curve. For many digital products, their costs seem to be dominated by the increasing return in all output levels, a pattern observed in many natural monopolies. It is commonly asserted that computer software costs nothing or little to duplicate and development costs account for the majority of its production cost. Consequently, the average cost of a computer program will go down as more copies are sold. When a product has decreasing average cost or an increasing economy of scale, a competitive market often fails to achieve an efficient solution.