CORPORATE CRIME REPORTER
Antitrust
Probes of Intel Chip Monopoly Heat Up
22 Corporate Crime Reporter 27, July 8, 2008
The market for the x86 computer chip is $30 billion a year.
It’s an 80/20 market.
Intel has 80 percent.
Advanced Micro Devices (AMD) has 20 percent.
In June 2005, AMD sued Intel alleging that Intel is pushing its major customers, such as Dell, Sony, Gateway and Hitachi, to buy Intel chips only.
AMD believes that it is doing so with illegal discounts and rebates.
That case is scheduled for trial in February 2010.
In the meantime, antitrust authorities around the world have jumped on the case.
The Japanese investigated and settled a case against Intel.
The Koreans investigated and fined Intel $25 million. That case is on appeal.
The European Union has opened an investigation.
In the United States, the New York Attorney General has opened an investigation.
And the Federal Trade Commission, after years of saying no, last month said yes and opened an investigation.
In August 2007, the American Antitrust Institute wrote to then FTC chair Deborah Majoras, pleading with her to open an investigation of Intel.
AMD is a funder of AAI.
Majoras refused to open an investigation.
But Majoras has since left the FTC and been replaced by William Kovacic as chair of the FTC.
Last month, Kovacic ordered an FTC investigation of Intel.
Robert Lande is a professor of law at the University of Baltimore School of Law.
He’s also on the board of the American Antitrust Institute (AAI).
“Microsoft was World War 3.0. This is World War 4.0,” Lande said. “This is the other half of the Wintel monopoly. This case is every bit as big, every bit as important as the case against Microsoft. It is staggering. I’m not quite sure why Microsoft captured the public’s attention so much more than Intel. Part of it was – we see Windows. We may know that there is an Intel chip inside, but it doesn’t hit you in the face the way Microsoft Windows and Internet Explorer hits you in the face. And Bill Gates was and is quite a character. That helps draw attention. But the Intel case is every bit as important as the antitrust cases against Microsoft. It’s a $30 billion a year market. Innovation is at stake. Reporters should be giving this case as much attention as they gave the Microsoft case.”
Lande gave an example how Intel is allegedly illegally trying to squeeze AMD.
“Let’s suppose that Acme Computer buys ten chips a month,” Lande says. “Let’s suppose that Acme buys two of these chips from AMD and eight from Intel. And let’s suppose that Intel sells its eight chips for $10 each. So, Acme Computer is spending $80 a month with Intel.”
“Suppose AMD wants to raise its market share. Suppose AMD says – we’ll sell you the same X86 chip for $5 each. So, we have a lower price. Price per chip has gone down from $8 to $5. Good for competition. Sounds like in the long run it will be good for consumers.”
“But then suppose Intel responds the following way. Suppose Intel says – we’ll continue to sell you eight chips at $10 each. Or we’ll sell you ten chips at $8 each. We’ll give you a per unit discount – a retroactive discount. If you buy ten chips – all of the chips you want to buy from us – we’ll give them to you at $8 each.”
“Now, Acme Computer would quickly calculate that they could buy eight chips for $10 each and spend $80 total. Or they could buy ten chips for $8 each – the same $80.”
“In effect, Intel is giving them the marginal two chips for free.”
The marginal cost to Acme Computer company for those two additional chips is zero, Lande says.
“So, it doesn’t matter if AMD prices its chips at $5 each, or $1 each, or one penny each. They can’t beat the Intel chip – which is selling the extra two chips at zero.”
“Giving away a product for free is a violation of the antitrust laws. Where is the efficiency basis for pricing the marginal units at zero? How is that competition on the merits? Rather it is a cleverly disguised discount or rebate to exclude competitors.”
[For a complete transcript of the Interview with Robert Lande, see 22 Corporate Crime Reporter 27(10), print edition only.]
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