Thursday, 14 April 2011

Antitrust as industrial policy: lessons from the Intel case

Alberto Mingardi has been blogging on this subject at the AEI blog. He writes,
Intel has been the last in a series of antitrust cases targeting hi-tech companies: the European Commission found it guilty of abusing its dominant position, for its conduct towards a group of Original Equipment Manufacturers (OEMs) and a German retailer. The ruling is based on the principle according to which a supplier enjoying a dominant position should not bind to itself customers or distributors: its conduct is considered abusive.

Picture yourself entering a shop and being granted a conspicuous discount by the seller. Would you feel abused? The Commission’s allegation is that, since the discount was given to you by the shop which is already the most prominent in town, competition is negatively affected as others won’t be able to compete in a stronger way. And if your demand is met by the dominant seller’s supply, competitors will be slower at getting to the market with their new products.

The microchip market is now dominated by two participants, Intel and AMD. But has consolidation negatively affected competitive development? Looking at prices [...] it doesn’t really seem so, as the trend shows declining prices. Performances increased sharply too: as anybody who had a computer in 1996, and has one now, can easily testify.

Would innovation have been faster under another market structure? The question is interesting, but should we allow political authorities to determine market structures, assuming that they know better?
So the European Commission thinks lowering price is wrong and I'm guessing that they would also consider raising prices wrong as well, so what is left? I'm reminded of the following quote from William Landes on why 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.”

–William Landes, “The Fire of Truth: A Remembrance of Law and
Econ at Chicago”, JLE (1981) p. 193.
How can Intel be accused of anti-competitive behaviour when it was giving "hidden discounts" to 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.

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