One charge hard to level at Intel: Raising prices
Experts say Intel has been instrumental in driving down PC prices, one of the key indicators of competition and one charge New York's Attorney General cannot easily level against Intel in its antitrust lawsuit.
New York Attorney General Andrew M. Cuomo on Wednesday filed a federal lawsuit against Intel accusing it of paying computer makers rebates to illegally maintain its monopoly power and preventing AMD from gaining business with PC makers.
One of the operative charges in the complaint centers on prices. "Intel launched an illegal campaign to deprive AMD of distribution channels and consumers of product choice and lower prices," the complaint alleges.
Not so fast, say some experts. "Prices are falling, buyers are not complaining about Intel's loyalty discounts, and the lower prices produce obvious and immediate benefit for consumers," said Joshua D. Wright, professor at George Mason University School of Law, and a scholar in residence at the Federal Trade Commission until 2008.
"Given the intuitive and easy to grasp nature of the consumer benefits of discounting contracts in the Intel case, I suspect that judges will be less likely to condemn these practices without real proof of actual consumer harm. I'm skeptical that AMD, (New York), or the (Federal Trade Commission) will be able to produce that here," Wright said.
And prices continue to fall. One of the most recent examples of steep downward PC price pressure is Netbooks, which have been a hit with many consumers because of their low cost, typically around $350. Intel, along with PC makers such as Asus, Acer, and Hewlett-Packard, created, in 2008, the Netbook market, whose rise forced AMD to counter with a technology platform for low-cost thin laptops that are, ironically, more expensive than Netbooks. "Ultrathins"--a market that Intel also participates in and is sometimes referred to as CULV, or consumer ultra low voltage laptops--typically start at $500 and range up to about $900.
The emergence of these two new low-cost laptop segments (Netbooks and ultrathins) is rooted in Intel's Atom processor, which is listed at prices as low as $29. Standard mobile processors, by comparison, have historically commanded prices above $200.
This is a pricing trend that clearly benefits consumers. Wright adds that U.S. law differs from the European Union--where Intel was fined $1.45 billion earlier this year--in the area of monopolies and harm to competition. "The main difference between U.S. and EU law is that when it comes to monopolization cases, the U.S. approach is inherently skeptical about condemning conduct which benefits consumers to avoid speculative future harms. The EU approach condemns most any non-standard discounting contract from large firms on the grounds that they are likely to harm competition," he said.
Others allegations in the complaint center on Intel coercing PC makers to buy Intel chips at the exclusion of AMD. Though this is an allegation Intel may have more trouble defending against, it's all part of price competition, according to some experts. "Once you strip away the charged but meaningless phrases like 'bullying,' it boils down to accusing Intel of offering steep price rebates in order to retain business--i.e., the essence of competition," according to a note released Thursday by Richard Brosnick, who practices in the area of antitrust at the law firm Butzel Long.
"One of the purposes of antitrust is to get companies to compete on price. To tell a company like Intel that you can't drop price in response to competition is taking antitrust laws to a place they're not intended to be," he said in an interview.
Wright says PC makers, rather than being bullied by Intel, use Intel and AMD pricing as bargaining chips. PC makers "are able to play Intel and AMD off each other to get higher rebates. These rebates are ultimately passed on to consumers in the form of lower prices. That's a critical part of the equation here," Wright said.
The complaint also makes repeated charges that prices would have even been lower "absent Intel's illegal acts" and "consumer gains greater."
"One can always make the argument, and NY and AMD will do so in this case, that prices would have fallen even faster without Intel's loyalty discounts," Wright said. "The problem with that type of argument is that it is completely non-falsifiable."
Other experts say Intel goes one step too far with its pricing tactics. "Intel has a long tradition of trying to prevent competitors from making serious inroads into their markets," said one expert close to the case that AMD has filed against Intel. This person said that the court will have to determine what pricing and rebate strategies are "just unethical" and which are "illegal."
Updated at 3:15 p.m. PST: adding discussion about mobile processor pricing.
Brooke Crothers has served as an editor at large at CNET News, an editor at Dow Jones' Asian Wall Street Journal Weekly, and a senior editor at InfoWorld. His CNET blog covers chip technology and computer systems, and how they define the computing experience. He also contributes to The New York Times' Bits and Technology sections. He is a member of the CNET Blog Network and is not an employee of CNET. Disclosure. Follow Brooke on Twitter @mbrookec. 
That amounts to bribe !!!
in NY!
Random_Walk: While there are many fabs out there, there are very few 45nm and similar fabs needed to compete with today's technology. There are many 0.25µm fabs out there which can be hired to make chips if you want to compete with the Pentium 3. This is an industry which is extremely difficult and expensive to get into.
in NY!"
Err, Except that tiny one known as IBM (in Armonk) ;)
prolly meant 35nm :)
OTOH, I think AMD has enough of teh 45nm fabs to get a good start if Intel suddenly jacked up their prices. IIRC, export controls keep Intel, AMD, and any other US corp from letting fabs capable of that size or smaller out of the country anyway...
Very clever anti-competitive tacit.
Ultra thins just continue the trend of reducing the thickness of laptops brought on by the reduction of size of internal hardware components. Again this has nothing to do with Intel dropping their prices. Give me a break!
Whereas laptops, few laptops from any vendor still offer parallel ports. In the same space that one can put one parallel port you could easily put 4 USB ports. Save for parallel dongles, most devices will operate just fine with a USB to IEEE-B adapter.
That being said you do make a good point that netbooks are more popular due to their small size than their price. Sub-10" notebooks(which we used to call sub-compacts before the term netbook became popular) have been around for a long time. It has only been in large part due to the declining cost of the components that one has been to profitably sell a new 9" notebook for $300-400. 4-5 years ago most notebooks that were that small sold for >$1000, which was often a huge price premium for the smaller components. Honestly, I am somewhat depressed that netbooks are selling with basically the same components(same CPU/chipsets, etc.) that they did last year and they are only 20-30% cheaper at best. In that respect I gotta imagine that the vendors aren't doing too badly profit wise on them.
Now, as far as linking discounts to NOT using competitors products, it's hard to see how that isn't anti-competitive. The problem was, as I recall, that AMD actually had a better design at the time. Which is why M. Dell complained about not being a thought leader. AMD's design was them to gain market share and threaten Intel's domination. It seems that they chose to use their financial muscle to hold AMD off until they could come out with a better design. You really do have to think about this in the longer term, i.e. not quarter to quarter.
Just my 1/50 of a USD.
When you can't compete, fake a rebate!
Compare the price/performance of your computer today vs one of three years ago. See if you can buy alternatives. Then ask yourself if there is irreparable harm.
?Experts say Intel has been instrumental in driving down PC prices?
Driving PC prices down has nothing central to do with the case. Is is a general trend involving a multitude of vendors and business, having nothing to do with the case.
And so comes the expert- called ?some experts?:
"Not so fast, say some experts. "Prices are falling, buyers are not complaining about Intel's loyalty discounts, and the lower prices produce obvious and immediate benefit for consumers," said Joshua D. Wright, professor at George Mason University School of Law, and a scholar in residence at the Federal Trade Commission until 2008. "
What prices ? you ?some experts?. Not the price for the PC but for the processor. You know ?some expert?, there is something inside the box. The box you call the harddisk, and the processor is the thing you call chips.
"Given the intuitive and easy to grasp nature of the consumer benefits of discounting contracts in the Intel case, I suspect that judges will be less likely to condemn these practices without real proof of actual consumer harm. I'm skeptical that AMD, (New York), or the (Federal Trade Commission) will be able to produce that here
Intuitive and easy like this (from the case):
Kevin Rollins had said that Dell had ?made no plans to begin using? AMD chips. ?Finally
something positive? commented one Intel executive. Otellini commented: ?The best friend
money can buy.? (Emphasis added).
And later:
?Stop writing checks immediately and
put them back on list prices asap.?
-----
"Others allegations in the complaint center on Intel coercing PC makers to buy Intel chips at the exclusion of AMD. Though this is an allegation Intel may have more trouble defending against, it's all part of price competition, according to some experts. "Once you strip away the charged but meaningless phrases like 'bullying,' it boils down to accusing Intel of offering steep price rebates in order to retain business--i.e., the essence of competition," according to a note released Thursday by Richard Brosnick, who practices in the area of antitrust at the law firm Butzel Long.
"One of the purposes of antitrust is to get companies to compete on price. To tell a company like Intel that you can't drop price in response to competition is taking antitrust laws to a place they're not intended to be," he said in an interview. "
Like this ?price drop? = price drop = ?transferring? - from the case:
On November 10, 2005, Michael Dell followed up with an email to Otellini: ?We
have lost the performance leadership and it?s seriously impacting our business in several areas.?
Otellini?s reply: ?There is nothing new here. Our product roadmap is what it is. It is improving
rapidly daily. It will deliver increasingly leadership products ? Additionally, we are
transferring over $1B per year to Dell for meet comp efforts. This was judged by your team to be more than sufficient to compensate for the competitive issues.?
"Wright says PC makers, rather than being bullied by Intel, use Intel and AMD pricing as bargaining chips. PC makers "are able to play Intel and AMD off each other to get higher rebates. These rebates are ultimately passed on to consumers in the form of lower prices. That's a critical part of the equation here," Wright said. "
No Wright ? ?some experts?. You got it wrong. It is transferred to the customers as slower pc, because the vendors is forced to sell slow Intel pc as long as they can. (as you don?t know what a processor is). Here it is from the case when Dell is tired of selling slow PC:
In this email, Otellini wrote:
- [Michael Dell] opened by saying ?I am tired of losing business? ? he
repeated it 3-4 times. I said nothing and waited.
- He has been traveling around the USA. He feels they are losing all the high
margin business to AMD-based sku?s ?
- He is ?tired of being behind for 4 years (when I protested that it was 2, he
said, no the last 2 years, this year, and next year).
- As a result, ?Dell is no longer seen as a thought leader?
------
"One can always make the argument, and NY and AMD will do so in this case, that prices would have fallen even faster without Intel's loyalty discounts," Wright said. "The problem with that type of argument is that it is completely non-falsifiable."
You have to prove there would be a difference. We know all for sure that Intel would have less market share if it wasn?t for the use of monopoly power for giving what you call ?rebates?. Just look at it:
?Otellini reported back on a telephone conversation with Dell?s
CEO Kevin Rollins:
I had my call with Kevin yesterday. It went well. He did NOT ask for money ??
Buck for buck AMD is ahead and Intel seems to be almost fear driven to compete in the manner that it has.
They have the ability to play fair, perhaps they should let their engineers have more say rather than the bean-counting desk jockeys whose attitude might now cost them very dearly.
"Given the intuitive and easy to grasp nature of the consumer benefits of discounting contracts in the Intel case, I suspect that judges will be less likely to condemn these practices without real proof of actual consumer harm. I'm skeptical that AMD, (New York), or the (Federal Trade Commission) will be able to produce that here
Intuitive and easy like this (from the case):
Kevin Rollins had said that Dell had ?made no plans to begin using? AMD chips. ?Finally
something positive? commented one Intel executive. Otellini commented: ?The best friend
money can buy.? (Emphasis added).
And later:
?Stop writing checks immediately and
put them back on list prices asap.?
-----
"Others allegations in the complaint center on Intel coercing PC makers to buy Intel chips at the exclusion of AMD. Though this is an allegation Intel may have more trouble defending against, it's all part of price competition, according to some experts. "Once you strip away the charged but meaningless phrases like 'bullying,' it boils down to accusing Intel of offering steep price rebates in order to retain business--i.e., the essence of competition," according to a note released Thursday by Richard Brosnick, who practices in the area of antitrust at the law firm Butzel Long.
"One of the purposes of antitrust is to get companies to compete on price. To tell a company like Intel that you can't drop price in response to competition is taking antitrust laws to a place they're not intended to be," he said in an interview. "
Like this ?price drop? = price drop = ?transferring? - from the case:
On November 10, 2005, Michael Dell followed up with an email to Otellini: ?We
have lost the performance leadership and it?s seriously impacting our business in several areas.?
Otellini?s reply: ?There is nothing new here. Our product roadmap is what it is. It is improving
rapidly daily. It will deliver increasingly leadership products ? Additionally, we are
transferring over $1B per year to Dell for meet comp efforts. This was judged by your team to be more than sufficient to compensate for the competitive issues.?
"Wright says PC makers, rather than being bullied by Intel, use Intel and AMD pricing as bargaining chips. PC makers "are able to play Intel and AMD off each other to get higher rebates. These rebates are ultimately passed on to consumers in the form of lower prices. That's a critical part of the equation here," Wright said. "
No Wright ? ?some experts?. You got it wrong. It is transferred to the customers as slower pc, because the vendors is forced to sell slow Intel pc as long as they can. (as you don?t know what a processor is). Here it is from the case when Dell is tired of selling slow PC:
In this email, Otellini wrote:
- [Michael Dell] opened by saying ?I am tired of losing business? ? he
repeated it 3-4 times. I said nothing and waited.
- He has been traveling around the USA. He feels they are losing all the high
margin business to AMD-based sku?s ?
- He is ?tired of being behind for 4 years (when I protested that it was 2, he
said, no the last 2 years, this year, and next year).
- As a result, ?Dell is no longer seen as a thought leader?
------
"One can always make the argument, and NY and AMD will do so in this case, that prices would have fallen even faster without Intel's loyalty discounts," Wright said. "The problem with that type of argument is that it is completely non-falsifiable."
You have to prove there would be a difference. We know all for sure that Intel would have less market share if it wasn?t for the use of monopoly power for giving what you call ?rebates?. Just look at it:
?Otellini reported back on a telephone conversation with Dell?s
CEO Kevin Rollins:
I had my call with Kevin yesterday. It went well. He did NOT ask for money ??
You can get cheap low watt chips to have the basic computing services but if you want more with a good future for computing pay up is my view.
I am not sure who these experts are. Some other experts would argue this comment. Without AMD and others, there will be no progress. Today's computer performance and price are the result of AMD challenging Intel. While AMD had some bad execution the last 2 years which Intel is using as an excuse to bury their predatory pricing and other marketing tactics, AMD surpassed Intel products in terms of performance and even price considering that AMD has higher operation cost due to mainly volume (i.e. lower volume compared to Intel). Without Intel an-ethical marketing tactics, AMD would have reduced cost further by building more fabs like the one in NY and perhaps other ones in mind.
If Intel had offered those rebates to the consumers, everything would be cool.
But rebates are anything but cool. Not only do consumers get mad at the rebate companies, they get mad at the people who sold them the product. Bad blood all around.
So the chip manufacturer gave the rebates to the product manufacturers who were then able to lower prices.
The consumers don't even have to buy a stamp or get two copies of their sales receipt.
I would consider that wise, common sense, streamlined, consumer friendly, innovative, environmentaly friendly, and thoughtful.
Good blood all around.
Dell and Intel are stakeholders in a beautiful thing. Thanks guys!
If it wasn't for the good old fasioned New York shakedown, consumers would never say a thing. Prices continue to drop, capacity and quality continue to increase.
Up yours New York!
It's beyond obvious to anyone in the tech industry that Intel has been illegally restraining trade against AMD and you got a couple hack law professors to blabber about it MAY not be, and obfuscate the issues...?
And you thought you'd use the Neanderthal "but chip prices have always been falling" canard? Even when AMD out-designed Intel, did they get a jump in share? No. And you're saying that it's OK for a chip firm (or any firm) to have enough monopoly profits to pump $2 BILLION of bribes into Dell and that's somehow legal or even economically sane? Oh, you mean, like how real estate prices would always go up? Or, somehow, IE legitimately claimed their high market share with no tying to Office formats or secret Win32 APIs?
On what planet do these truths hold...the one that has LSD as one of the four food groups?
AND...you get your hack "experts" to badmouth the EU, Japan, and Korea for enforcing their anti-trust laws? How pathetic was that? We had 8 yrs of do-nothing, know-nothing, keep-the-Fed-Rate-at-1%-forever, destroy-the-dissenters violence while letting multi-nationals pay minuscule taxes and collapse the economy...and we're to believe that de-funded government agencies have been properly carrying out their regulatory oversight and Intel's just being harassed...?
You should apologize for your misinforming CNET readers and contempt for tech consumers, in general. What a sad display of "journalism."
- by cheema33 November 9, 2009 2:03 AM PST
- You can't win with some people. Price your products high and you get blamed for over-charging. Price them low and you are accused of predatory pricing.
- Like this Reply to this comment
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