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Dell's Intel Bias Caused By Under the Table Cash?
swschrad writes "There's a story up on Reuters today saying Dell faces a class-action lawsuit for finagling the books to hide under-table money from Intel. The hidden cash, up to a quarter-billion dollars a quarter, is alleged to have been paid to keep competing CPUs out of Dell PCs. Dell, their accountants at PriceWaterhouse, company founder Michael Dell, and former CEO Kevin Rollins are all avoiding comment on the pending litigation."
One way in which a monopolist controls the market is with public price matching. For example, if Intel publishes all their pricing, and guarantees that anyone going exclusively Intel will not pay more than say, Dell, then if Intel drops the price to Dell, they have to refund money to other all-Intel shops... perhaps Apple or other players that agreed to go all Intel to get price breaks.
If Intel gives Dell a 250m rebate, then they are actually charging below the price, and would have to match it elsewhere. However, by hiding the rebate, they can keep charging Dell a book value and collecting the premium elsewhere.
When big players negotiate big contracts, they often put in protections to not be worse off than the competition. I would expect the deal to be illegal because by not disclosing it, they MAY be in material breach to other companies. Further, Intel has signed consent decrees with the Feds over alleged anti-trust violations, and non-disclosed payments to keep competition out may violate those agreements.
This isn't a local computer shop contracting with a wholesaler, these are two Fortune 50 companies, sometimes they have arrangements covering them.
Also, what if a state government agreed to a deal where Dell was the exclusive provider in exchange for cost-plus accounting. Dell would bill on the reported cost, plus profit margin, and then collect the rebate.
There are a bunch of reasons why this might be illegal because it is potentially defrauding other companies IF their deals are dependent on Intel or Dell's pricing structure.
It's called predatory pricing. Mainly it's when a larger company with more marketshare prices their products below profitability in order to bankrupt their competitor.
It's one of the main reasons that straight free markets don't work.