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January 18, 2007
EU vs. Intel

Staff at the European Union's Competition Directorate are recommending formal charges against Intel, according to the Wall Street Journal.

At the heart of the EU case are AMD's allegations that Intel withholds rebates from computer makers when they buy too many AMD chips. "It is simply a coercive tactic," Tom McCoy, AMD executive vice president for legal affairs, said this month.
Forbes is reporting that AMD's complaints include the offering of rebates to computer manufacturers for shutting out AMD and allegations that Intel has engaged in predatory pricing aimed at keeping AMD's competing CPUs (central processing units) out of the market. Intel denies these charges.

This could just be negative spin for volume discounts. Intel, or any other firm, offers volume discounts to induce further sales. The discounts are justified because higher sales volumes lower unit production costs. Predatory pricing occurs if the discounts reduce the sale price below the cost of production. Predatory pricing is inefficient. Assuming, that is, that we're talking about Intel's cost of production and not AMD's. Sometimes what the complainant is really saying is it can't make a profit, so it assumes the defendant's price is below-cost. Besides, if it can't make a profit then it will go out of business and the defendant could raise its prices with impunity. Sounds scary. Problem is, the remedy would be awful. If we required the most efficient firm in a market to set its prices high enough to allow the least efficient firm to make a profit, we would wind up with a cartel where prices constantly rise, quality falls, innovation suffers and everyone except the consumer is fat and happy. Since Intel can't possibly know what AMD's cost of production is, we either have to accept collusion or accept that Intel will attempt to avoid further legal trouble by setting its prices in a safe zone, which is likely to be well above its costs. These are some of the reasons antitrust law doesn't protect less efficient firms, since to do so would saddle consumers with higher prices.
Competition law as practiced by the EU provides far more scope than our own antitrust jurisprudence for enforcers to intervene in the market in search of perfection. Yet Competition Commissioner Neelie Kroes'ds summation of her own philosophy is consistent with our approach,

My own philosophy on this is fairly simple. First, it is competition, and not competitors, that is to be protected. Second, ultimately the aim is to avoid consumers harm.

Trouble is, the EU is trying to make Europe more competitive without making it more efficient.

Dotted Divider Line





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