May
Antitrust Laws in the wake of Intel Fine
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Reading about the recent fine of $1.45 billion imposed on Intel by the European Union on TechCrunch, various thoughts came to my mind regarding the strategy of Intel. Intel is the most successful chip manufacturer in the world and it has maintained is dominance over the years. The giant must have taken many steps in this regard to keep its competitors (read AMD) behind.
Quoting from Wikipedia the competitive law or antitrust law has 3 main elements
- prohibiting agreements or practices that restrict free trading and competition between business entities. This includes in particular the repression of cartels.
- banning abusive behaviour by a firm dominating a market, or anti-competitive practices that tend to lead to such a dominant position. Practices controlled in this way may include predatory pricing, tying, price gouging, refusal to deal, and many others.
- supervising the mergers and acquisitions of large corporations, including some joint ventures. Transactions that are considered to threaten the competitive process can be prohibited altogether, or approved subject to “remedies” such as an obligation to divest part of the merged business or to offer licences or access to facilities to enable other businesses to continue competing.
It has been claimed that Intel paid computer manufacturers like Acer, Dell, HP, Lenovo and various retailers to postpone, cancel or downright avoid using AMD. By doing so it ofcourse broke the first prohibited practice on the list. Moreover it caused a lot of damage to AMD. I can’t imagine how AMD has managed to survive through such a hostile environment where no one is willing to buy your product, or with companies buying and then cancelling their orders later. AMD must be given due credit for it.
According to TechCrunch, the worldover commission for x86 CPU chip is worth Euro 22 billion per year, and worth Euro 6.6 billion per year in Europe itself. Intel controls 80% of this which means they make Euro 5.28 billion per year by selling x86 CPU chips in European Union. I believe a lot of credit must go to Intel chip technology for this but a sizable credit should also go to the strategy of manhandling their rivals like AMD. Lets give 30% credit to the prohibitive strategies and this gives us Euro 1.58 billion per year owing to the “wrong” policies of Intel that harm the industry and break the antitrust laws.
Lets try to analyze! According to the courts, Intel has been breaking the antitrust laws since many many years and has maintained an unlawful monopoly over the CPU chip market. Through this they have made billions and AMD has lost billions (Intel made Euro 1.58 billion per year according to above estimates). For breaking the rules the court have fined Intel Euro 1 billion! Yes, you read it correctly, Euro 1 billion of fine on Intel. But that means Intel will still make a profit after paying the fine even this year. So following wrong strategies and breaking competitive and antitrust laws seems profitable according to this. May be I have got it wrong but if the courts are sure than what Intel is doing is wrong then they definitely need to re-analyze the situation.
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3 Responses to “Antitrust Laws in the wake of Intel Fine”
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There are many examples of companies violating competition norms and getting fined and even then making a profit. A case in point is Coke vs Pepsi in Venezuela. There too it was a distribution channel issue
I think the monitoring has to be improved to ensure such things dont happen. 1Billion Euro for violations over 5 years is hardly a commensurate fine.
P.S: The business standard article is quite good
Updates on this case: courtsey Techcrunch: http://www.techcrunch.com/2009/05/13/intel-fined-over-e1-billion-for-violation-of-european-antitrust-laws/
Paul Otellini, Intel Corporation president and CEO just issued the following statement:
“Intel takes strong exception to this decision. We believe the decision is wrong and ignores the reality of a highly competitive microprocessor marketplace – characterized by constant innovation, improved product performance and lower prices. There has been absolutely zero harm to consumers. Intel will appeal.”
“We do not believe our practices violated European law. The natural result of a competitive market with only two major suppliers is that when one company wins sales, the other does not. The Directorate General for Competition of the Commission ignored or refused to obtain significant evidence that contradicts the assertions in this decision. We believe this evidence shows that when companies perform well the market rewards them, when they don’t perform the market acts accordingly.”
“Intel never sells products below cost. We have however, consistently invested in innovation, in manufacturing and in developing leadership technology. The result is that we can discount our products to compete in a highly competitive marketplace, passing along to consumers everywhere the efficiencies of being the world’s leading volume manufacturer of microprocessors.”
“Despite our strongly held views, as we go through the appeals process we plan to work with the Commission to ensure we’re in compliance with their decision. Finally, there should be no doubt whatsoever that Intel will continue to invest in the products and technologies that provide Europe and the rest of the world the industry’s best performing processors at lower prices.”
I hate to play the devil’s advocate here, but the way anti-trust is defined in cases not involving cartelization is slightly counterintuitive. The Intel-AMD dispute would legally come under provisions regarding “monopolization”. As per law, it is illegal to take any kind of action so as to create “sustainable monopolies”. You not only have to prove that someone is creating a monopoly; you also have to prove that the monopoly is sustainable. For instance, consistently charging below cost can drive a company itself out of business, so this doesn’t amount to monopolization. But if someone can prove that the act of selling below cost will first drive rivals out of business and therefore give the accused a chance to subsequently increase prices, this amounts to monopolization. Also, costs are a very subjective thing. Smart cost accounting can make proving sale below cost very difficult.
Also, selling at low margins is not a crime. After all, if Intel gave customers substantial discounts including payment of damages to AMD for cancellation of orders rather than explicitly paying money, would it not amount to the same thing?