Article published on TCS on August 25, 2005.
Legal problems have been mounting lately for computer-chip giant Intel. First it came under attack from the Japanese antitrust authority. Then its main competitor on the microprocessor market, AMD, announced at the end of June that it had filed a complaint in the United States against its rival for limiting competition. Then, on July 12, the company’s offices were searched by the European Commission, again as part of an antitrust investigation prompted by an AMD complaint and in collaboration with the Japanese authorities. Intel is accused of taking illegal advantage of its near-monopoly position — its share of the microprocessor market accounts for 80 percent of the worldwide total — by using unfair business practices. These are alleged to be exclusive deals with clients, discriminatory refunds, threats of retaliation, etc.
Since the Sherman Act was passed in 1890 in the United States, antitrust policies have always been supported in the name of consumer protection, by economists as well as governments. The European Commission and the American and Japanese antitrust authorities, like Senator Sherman 100 years ago, claim they are fighting against actions which lead to the situation described in the AMD complaint: “In the end, consumers pay the bill through higher prices.”
This is a particularly interesting complaint to read, and the first sentence has been skillfully chosen by AMD’s lawyers: “Like Standard Oil at the turn of the Nineteenth Century and Alcoa Aluminum during the Twentieth, Intel holds a monopoly in a market critical to our economy…” The oil company was Senator Sherman’s favorite target. Using this precedent as a reference is very clever. It is generally considered to be the main historical reference when it comes to cases of uncontested monopolistic abuse, which immediately links Intel’s officials with those that “history” has condemned.
Rhetoric aside, the historical parallel between Standard Oil and Intel is as appropriate, though for reasons very different from the ones suggested in AMD’s complaint. The antitrust history is not one of heroic consumer protection, even in the Standard Oil case. It is true that the first antitrust laws were passed in reaction to a movement of industrial concentration. But this concentration, in the oil sector as elsewhere, usually went hand-in-hand with growing production and impressive price reductions. These laws came about through lobbying by producers who could not cope with the price reductions made possible by the trusts’ production techniques. In other words, antitrust was really the protection of certain producers from their competitors, to the detriment of consumers.
There are at least two common points between this picture and the world of information technology: the evolution of prices and the fact that competitors, not consumers, complain. Today it is difficult to imagine another sector in which prices are decreasing so rapidly. Who would deny that in 2005 you can buy a computer for much less than only ten years ago, and one with a capacity which makes its 1995 ancestors look like dinosaurs? Yet weren’t Intel and Microsoft, the bêtes noires of the antitrust authorities, already what they are today, that is to say “monopolies”? Since, in principle, having a market share of 80 percent is wrong only when it has a negative impact on the consumer, it is the latter that must be proven. It is not enough to update “restrictive” or “discriminatory” business practices. Bearing in mind the recent evolution of prices for consumers, the decision should be in Intel’s favor, and it should have been the same for Microsoft.
It is true that we could claim these price reductions have taken place in spite of the business practices that Intel is accused of. However, the methodology of the economic theories underlying antitrust policies is generally very empirical. Economists rarely believe that a link between cause and effect can be found other than through experience. Now, the empirical observation is clear: prices have decreased. Based on their own method, the hypothesis of Intel’s abuse of a dominant market position detrimental to the consumer is seriously discredited. If the authorities do not care for this fact, this only suggests that history repeats itself: antitrust policy has nothing to do with consumer protection and everything to do with producer protection.
Xavier Méra is an associate researcher at the Molinari Economic Institute.