The world's biggest semiconductor maker yesterday was fined a record $1.45 billion by European regulators for allegedly using its dominance to edge out rivals, a decision that has cast a spotlight on similar investigations by U.S. antitrust watchdogs.Perry goes on to note
After a five-year review of Intel's sales tactics, the European Union's competition commission said the company, with 70% share of the global chip market, gave hidden discounts to computer makers to use its chips and paid the firms not to use those made by competitor Advanced Micro Devices. It also paid a major retailer to stock only computers outfitted with Intel chips, the commission said.
The chart above shows montly "CPI for Personal Computers and Peripheral Equipment" back to January 1998 (BLS data via Economagic here). Adjusting for quality improvements, computer equipment today costs only about 10% of what the same equipment cost in 1998. Consumers have never had it better when it comes to affordable computer equipment, so how can it be claimed that Intel is guilty of anti-competitive behavior that is damaging to consumers?The whole point of market power is to raise prices, and thus profits. But how can Intel be accused of anti-competitive behavior when it was giving "hidden discounts" to computer makers? A real anti-competitive monopolist, with real market power, acting in a truly anti-competitive way, would be in a position to raise prices, not lower them.
The true anti-competitive behavior of a coercive monopolist that should most concern government officials is when a producer (or group of producers, i.e. cartel like DeBeers or OPEC) restricts output and raises price. In the case of Intel, just the opposite has been happening: microchip output has been increasing, quality and speed have been improving significantly, and prices have been falling dramatically, and consumers have benefited enormously.
So it seems no matter what firms do, raise prices, lower prices, keep them the same, they can run up against the competition police. This is a great example of the point of the story William Landes tells about why Ronald Coase gave up antitrust,
“Ronald [Coase] said he had gotten tired of antitrust because when the prices went up the judges said it was monopoly, when the prices went down they said it was predatory pricing, and when they stayed the same they said it was tacit collusion.”The world of anti-trust looks truly bizarre.
–William Landes, “The Fire of Truth: A Remembrance of Law and Econ at Chicago”, JLE (1981) p. 193.
Update: Matt Nolan comments on Low prices and anti-competitive action.
Update 2: Richard A. Epstein (James Parker Hall Distinguished Service Professor of Law at the University of Chicago) writes at the IEA blog on Monopolization gone haywire. He says
[...] his academic at least can raise two doubts about the Commission’s attack on rebates.Update 3: Don Boudreaux notes that Government Is Anti-Trustworthy.
First, no claim of consumer harm can look just at individual cases. It must look at overall market conditions. Here the Intel rebates lowered prices for the 80 per cent of consumers that used its products. What consumer harm could outweigh those particular gains in either the short or the long run? Without these rebates Intel’s share of the market would fall and that of Advanced Micro Devices (AMD), the complainant in this case, would rise from its 12 per cent share. Suppose AMD’s share doubled, Intel would still serve about 2/3rds of the market. Where is the net harm when more consumers are helped than hurt by the rebate?
Second, AMD, as a nondominant firm, could of course offer rebates (or larger rebates) for its products to increase its market share. Now price competition increases, which is all to the good. The EC’s Kroes has gathered the scalp of yet another large American company by intoning the phrase “abuse of a dominant position”. But in so doing she has converted Article 82 into an anticompetitive provision, just as her critics have long feared.