Intel Corporation and Blocking Practices

Intel Corp. was the dominant producer of chips and other semiconductor components in the world during the 1990s and 2000s. The company’s rivals, such as AMD, accused it of antitrust practices. The competitors submitted the claim against Intel at the Federal Trade Commission (FTC) and European Commission (EC), resolved in 2009 and 2010. Intel was alleged to have abused its market power to maintain its monopoly in the global marketplace unlawfully. The approach adopted by the firm blocked new entrants and prevented them from engaging ineffective competition. The Intel case explains diverse practices employed by the company, how they were covered under different judgments, and remedies in the United States and Europe. Intel engaged in various practices such as exclusionary arrangements and other activities that restricted rival productivity or demand.

An exclusionary arrangement is an agreement that encompasses different features. First, buyers agree not to purchase from rivals of particular selling firms in a given market or restrict rival sales. Second, the firms selling products pay buyers a lump sum unrelated to the agreements’ purchased units, as mentioned earlier. Third, the selling companies threaten to reduce or withdraw the lump sum, increase the unit purchase price, or offer the plan to competing organizations should the buyers violate the agreement. This kind of practice in the market is applied by firms with significant market power against their rivals. The arrangements constitute blocking practices, which are illegal since they induce buyers to restrict rival companies’ sales. Additionally, the practices are enforced by punishment and reward to the buyers.

The firm’s other activities to restrict rivals’ demand or productivity are obfuscation, proprietary standard restrictive control, and hindering interoperability. These strategies have a significant impact on pricing, and they similarly deduce consumer choice as exclusionary arrangements. For instance, the standards and interoperability are critical in Intel’s case since microprocessors are components in both microcomputers’ operations and the manufacturer. Therefore, components’ efficiency is vital in generating value for the microcomputer consumers.

Blocking practices adopted by dominant companies in the global market reduce the rate of innovation in respective industries. These actions hurt the introduction of new products and upgrading the existing ones. Deployment of blocking practices in the market impacts innovation’s reward in two ways. First, they lower the profit generated by new entrants after innovation. Second, they increase returns for the incumbent employing the practices if the competing innovation is generated. As a result, the innovators, possibly new entrants, are less likely to enjoy the long-term benefit of their novelty. The blocking practices focus on improving future profit and reducing immediate earning, lowering the overall rate of innovation.

The cases that investigated Intel due to blocking practices were four, including the European Commission official investigation, AMD, Intel’s semiconductor competitor, private action, the state of New York’s inquiry, and the Federal Trade Commission examination. The two cases in the United States filed by the New York Attorney and AMD accused Intel of maintaining monopoly power, which violated Sherman Act, section 2. The Act illegalizes monopolization, conspiracy, attempted monopolization. The EC Treaty’s Article 82 that prohibited abuse of leading in the global market was used in the proceedings of the EC case. On the contrary, the FTC legal action against Intel was guided by Section 5 of the FTC Act that outlaws deceptive practices and unfair competition methods in the market. All four cases against Intel alleged that the firm took deliberate actions to block rival chip manufacturers from engaging in fair competition.

Intel’s dominant or monopoly position in the market was the most important factor considered in the cases. The monopoly power is the fundamental factor that helps separate blocking practices from other activities. Notably, the effectiveness of blocking practices can only occur if a company impacts and gain from reduced competition. Intel occupies a dominant position in the Central Processing Units (CPUs) marketplace, enjoying considerable market power. The two ways the firm’s monopoly power is portrayed are a very high relevant x86CPU market share and significant expansion and entry barriers. The four cases filed against the company claimed that it had at least 70% of the x 86CPU marked. Substantial sunk cost and brand recognition, and reputation were the identified barriers to expansion and entry. Although Intel admitted to having a substantial market share, the firm denied monopoly power in the x86CPU market.

The three blocking practices employed by Intel that formed the foundation of accusations include conditional rebates and payments, naked restrictions, and alteration to complementary products. The company offered rewarding rebates to original equipment manufacturers (OEMs), conditioning the latter to buy almost all x86CPU from it. The firm was also accused of paying OEMs to delay or restrict commercialization of competitors’ products. Further, Intel was alleged to have altered its products to degrade the performance of complementary products manufactured by rivals. The four cases conclusion involved the company paying fines and implementation of diverse behavioral remedies. For instance, FTC issued an order that banned Intel from discounts, conditioning rebates, and other benefits on the consumers.

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