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Intel Faces $1.3B Fine In Europe
Hugh Pickens writes "European antitrust regulators, who have been aggressively pursuing what they see as anticompetitive practices among technology companies, could impose their largest fine ever in a market-dominance case against Intel. The commission began investigating Intel in 2000 after Advanced Micro Devices, its arch-rival, filed a complaint. In two sets of charges, in 2007 and 2008, the commission accused Intel of abusing its dominant position in chips by giving large rebates to computer makers, by paying computer makers to delay or cancel product lines, and by offering chips for server computers at prices below actual cost. Some legal experts speculate that Intel's fine could reach about a billion euros, or $1.3B. 'I'd be surprised if the fine isn't as high or higher than in the Microsoft case,' said an antitrust and competition lawyer in London. In 2004 Microsoft paid a fine of €497M, or $663M at current exchange rates, after being accused of abusing its dominance; the EU imposed another $1.3B fine in Feb. 2008."
I like Intel's hardware, it's really impressive. But that kind of crap can't go unpunished and it's nice to see a penalty with some teeth, even if it's only potential teeth right now.
No there is no minimum price in the EU. There is however a rule saying that if you have a majority market share you are not allowed to lower your costs further than your production costs in order to try to kill competition.
The reason for this rule is that companies have in the past manipulated their prices in attempts to kill competition and thereby obtaining a monopoly. The airline SAS-Braathens was convicted of similar wrongdoings after they lowered their prices below their costs in order to kill competition and made up for it by charging multiple times typical airline fairs to destinations where they had a monopoly. The rules are very clear and established. Intel deliberately ignored them and are being punished accordingly. There's nothing strange here and the EU has been consistent about it. Intel and Microsoft got more attention because they are very large companies and the fines are based on your company's revenue. Other than that this is business as usual in the EU.
It is a practice called "DUMPING" designed to force the competition to either operate at a loss until they die or simply give up in the marketplace. Afterward, of course, the perpetrators jack their prices beyond what it should be, slow R&D so they can sell their old stuff faster and then set about abusing the market as a monopoly unimpeded.
Yes, indeed, it is illegal to "dump" your stuff in order to harm the competition.
In that alternate dimension where governments, not corporations, get to decide what the laws are. If Intel wants to do business in Europe, they have to abide by European law.
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Not an alternate dimension. This dimension. This plane.
Intel had a market-dominating position, with AMD barely sniffing that their knees in the early 2000s. They also had a big fat cash surplus. So, they decided that by selling at a loss, they could keep AMD from breaking into the market; once AMD was bankrupted, or not able to compete, then they could raise their prices back up and begin raking in the cash.
This is a very, very classic example of anti-competitive behavior. It doesn't get much more textbook than this.
No. Because Intel was dominant in the market, they couldn't sell at a loss to drive a much smaller competitor out of the market.
Note that this is illegal in the US as well as in the EU. I suggest before you get your panties in a wad about how this possibly couldn't be illegal, you actually bother finding out why it's illegal.
"Trolls they were, but filled with the evil will of their master: a fell race..." -- J.R.R. Tolkien on Olog-hai
As an european i'd say let the europeans benefit from the fines if the US is not interested in punishing those who broke the law by abusing their monopoly.
How are most of these practices problematic? Why should there be anything wrong with them selling chips for servers at below cost? Yes, it keeps them dominant but the result is cheaper servers for the rest of us. If the point of anti-trust regulations is to benefit the consumer then it isn't clear to me what the problem is with that aspect.
It can be confusing, if you only think about the cheaper servers you get today. If you had been around before AMD was competing with Intel on more than the budget desktop space, or even worse when AMD was nothing more than a second-source supplier of x86 chips, then you'd see the danger inherent in this and be petrified. Do you know how much Intel charged for a server chip before the Opetron came out? A high-end Xeon could cost you $4000 just for the processor. Shortly after the Opetron, that dropped to just over $1k. When they had no competition in the server market, they could charge whatever they wanted, and they used the buckets of money made there to fund price wars with AMD on the desktop. When they had no competition in the desktop market, they simply charged whatever they wanted for all their chips.
So today you get cheap servers, sold below cost and funded by Intel's significant cash reserves and still quite high margins in laptops. Tomorrow, when cash-strapped debt-laden AMD folds because they can't afford to sell chips below cost, Intel once again has the market to itself. And. You. Don't. Want. That.
Whether it should be illegal or not is debatable, but whether it's good for you in anything but the very short term is not.
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Seems like if you're making tens of billions of dollars annually due to your dominance of the market, a piddly little couple billion dollar fine every few years is a small price to pay. The accusation against Microsoft, similarly, is that they just see the fine as a business expense. When the fine is a drop in the bucket, why not just pay the fine and keep doing what you're doing?
I'm trying to teach myself to set people on fire with my mind... Is it hot in here?
Right, so If I have 10 billion in cash, and you have 1 billion in cash, I can drop the price on my product to well below cost, and take the hit. If you try to do the same you will run out of money before I do, and I will win. And THEN i can raise my price back to where I think it should be, ie 2 or three times the cut rate price.
So what you are suggesting is that you want to pay a higher price for what will become a rather mediocre product. (why try to make a better product if you don't have any competition? Research costs a lot of money.)