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It’s All About the Pentiums

November 4, 2009

New York State’s attorney general, Andrew Cuomo, has filed an antitrust lawsuit against Intel Corporation for using “illegal conduct” in order to “maintain its monopoly power and prices in the market for microprocessors.” Correct market definition, in this case the microprocessor market, is fundamentally the most important thing to do when pursuing an antitrust case because it is the difference between success or failure.

Intel is being accused of paying “hundreds of millions of dollars annually – and in some years billions of dollars – in so-called ‘rebates’ to individual computer makers” that turned out not to have “legitimate business purpose” other than to “disguise their anticompetitive nature.” Giving computer makers “rebates” so that they will use only your microprocessor allows Intel to keep competitors out of the market and capture majority market share. First, it creates barriers to entry for new firms that are thinking about entering the market. Second, it strengthens existing barriers to entry for firms already in the market.

The press release from AG Cuomo’s office also contains several email exchanges in which computer makers such as IBM and HP did not want to “accept the wrath of Intel” or be “punished” for doing business with competitors. The punishment or wrath in the email memos could refer to many things. One possibility is price discrimination, in which Intel could supply IBM with microprocessors at a lower price than what it would charge HP should HP decide to buy microprocessors from Intel competitor AMD. Costs for IBM would decrease meaning they could sell their computers at a lower price than HP computers resulting in lost profit and market share for HP.

The goal of this or any antitrust case is to restore market competition so that consumers can enjoy “more choices, lower prices, and better products.”

Special thanks to Xuan for her assistance

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