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You're wrong on one big point here. Microsoft is a good example of free market WORKING. The fact that they can do what they do shows how free the market really is. The more the government steps in to control companies, the less free the market is.
A perfectly even playing field and perfection competition is NOT a sign of a free market. A free market should more often than not be UNequal.
Sorry, I don't buy this at all.
How exactly is a market dominated by a single player, with enormous artificial barriers to entry, and profits from other markets used to artificially maintain this status quo free?
I mean, by your logic the Peoples Republic of China is a free country.
It's not about making everyone in the market equal but making the rules everyone follows apply to all and be equal for all invovled. You can't have someone above the law or above the rules just because they are succesfull. If that was the case and their was no goverment invovlment I and others ( including countries like North Korea ) could freely and anonymously buy a M1A1 tank on the "free market" at a price.







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With 50 billion dollars in the bank, even losing billions a year still won't be 'failure'.
Nobody is underestimating the ability of Microsoft to lose vast sums on MS Live to do whatever it is they think they want to do with it. They probably will eliminate any competition in whatever market Live is in, since nobody else can afford to lose as much as they can.
The lesson here is that crime (e.g. monopoly abuse) pays bigtime, and the concept of a free market in software or services in any sector is gone the moment Microsoft enters it.
Nobody 'underestimates' any mega-corporations ability to aggressively dominate an industry sector, given the complete failure of the US government to enforce its own laws, and the pervasive corruption due to corporate bribery/lobbying.