like a monopolist and AMD has been
squeezed out of the market. Computer manufacturers know how to play
off their two suppliers to their advantage. Intel claims that the payments to
customers were not tied to exclusive
or near-exclusive purchasing commitments, but were volume-based discounts enabled by economies of scale
in production. Thanks to Intel’s discount policy, consumers benefit from
lower prices. The prices were always
higher than Intel’s costs. Therefore Intel cannot be accused of selling below
cost to drive out AMD.
Whose story should we believe?
How can we tell who’s right?
In order to decide between the
two versions, the first thing to do is of
course to look at the facts. This is not
easy for an outside observer (including
this writer) because the evidence is off
limits. Only the public statements and
official decisions are available. In the
U.S. lawsuits, the State of New York’s
complaint and the FTC’s statements
total less than 100 pages. In the EU
case, the material is more abundant.
The European Commission’s decision
against Intel runs to more than 500
pages and cites numerous statements
by the parties. For example, a Lenovo
purchasing manager wrote in an email
message dated December 11, 2006,
“Last week Lenovo cut a lucrative deal
with Intel. As a result of this, we will not
be introducing AMD-based products
in 2007 for our notebook products.”
Thousands of figures are also reported. Unfortunately, in order to respect
business secrecy, almost all the figures
have been deleted from the public version of the decision. Thus, there is no
information about the amount of the
discounts granted to Dell.
A factual approach is also hampered
by the absence of formal contracts.
What Intel requested in exchange for
the payments to its customers is not
mentioned in written documents.
Most of the agreements were oral and
sealed with a handshake. The few written agreements raise no antitrust concerns. The State of New York and the
European Commission accuse Intel
of having deliberately removed from
the written documents the litigious
clauses with respect to antitrust law.
If the allegations were proved true, the
antitrust agencies would be dealing
the problem of
access to the
data and evidence
makes it impossible
to verify the validity
of the different
with a situation akin to a cartel. Since
the agreements were secret, evidence
is scant and often only indirect.
For want of being able to decide on
the basis of the facts, an outside observer can call theory to the rescue.
The first principle to recall is that
antitrust law seeks to protect consumers, not competitors. It does not oppose the elimination of less-efficient
competitors; it prohibits behavior of
firms that results in higher prices or
lower-quality products. While clearly
detrimental to AMD, did Intel’s actions
In the case of the naked restrictions,
the damage to consumers is not in
doubt. Let’s take the example of Intel’s
lump sum payments to HP, Lenovo,
and Acer in exchange for delaying the
launch of their AMD-based computers.
That practice (if proven) did hurt consumers: some had to wait before buying the product they preferred, while
others, in more of a hurry, had to buy
hardware that was not their first choice.
Moreover, consumers who were not interested in buying AMD-based desktops
and notebooks did not gain anything.
The money paid by Intel did not affect
the OEMs’ marginal cost and, consequently, the price of their computers.
Intel and the firms it paid off were the
only beneficiaries of these transactions.
The case of the rebates is a more
complicated situation. When rebates
are linked to volumes purchased, they
are good for consumers. They enable
manufacturers to pass on some of the
savings from economies of scale in
production and distribution. In other
words, they bring prices down for the
consumer. But retroactive rebates tied
to market share targets (for example,
the buyer receives a rebate if it cov-
ers X% of its requirements with the
same supplier) are a different story. If
a competitor wants to obtain a signifi-
cant share of the customer’s purchas-
es, it must compensate for the loss
of the rebates. For example, if Intel
offers $100,000 on the condition that
HP fulfills 95% of its requirements
with Intel, AMD will be forced to offer
the same amount if it wants HP to buy
more than 5% of its chips from AMD.
That threshold effect can have sur-
prising effects. It would explain, for
example, why HP refused AMD’s offer
of a million Athlon XP processors free
of charge. If the gift is worth less than
the rebate forfeited by not purchasing
95% of its requirements from Intel, it
is rational for HP to refuse it.
Economic literaturee shows this threshold effect can lead to the exclusion of
competitors that are at least as efficient as the firm offering the rebates.
And consumers lose out on two counts.
First, there are no more competitors to
push down the price set by the dominant firm. So consumers pay higher
prices. Second, there is no competitive
pressure driving the firm to innovate.
So products are manufactured at higher cost and their quality stagnates.
The European Commission sought
to show that Intel’s loyalty rebates indeed had a foreclosure effect. According to the Commission, a rival with the
same costs as Intel would have been excluded. Intel contests this conclusion
by finding fault with the Commission’s
calculations. But once again, the problem of access to the data and evidence
makes it impossible to verify the validity of the different viewpoints. Theory
without the facts is unfortunately of
little use for vindicating either the defendant Intel or the plaintiffs.
e See, for example, Nicolas Economides, “
Loy-alty/Requirement Rebates and the Antitrust
Modernization Commission: What is the Appropriate Liability Standard?, Antitrust Bulletin 54, 2 (Summer 2009), 259–279.
François Lévêque ( email@example.com)
is a professor of law and economics at Mines-Paris Tech in