Here we go again with real competition being portrayed as anticompetitive. The front page of the San Jose Mercury News reads, “FTC declines to probe Intel†because the head of the FTC is not moving forward with requests by Intel competitor AMD and lawmakers to look into illegal practices by Intel. In addition, South Korea and the European Commission have accused Intel of antitrust violations.”
Fortunately, Deborah Majoras, the FTC’s chairwoman, has rejected the requests to formally investigate Intel. Intel’s position is, of course, that AMD is trying to use the government to do what it cannot do itself—defeat Intel in the marketplace.
Intel is supposedly acting “anti-competitively†because according to the article it offers “large discounts to computer makers in exchange for not using products by the rival company, Advanced Micro Devices of Sunnyvale, which has struggled to compete and has waged a global antitrust campaign against Santa Clara-based Intel. Japanese officials made similar accusations in 2005.†This is the same nonsense of “trying to monopolize the market†and “predatory†pricing that has been charged against other successful companies.
Let me be clear. So what if Intel wants to monopolize the market and be the sole chip producer in the world? The only way it can do this is if consumers continue to make Intel the biggest and best in the business. What AMD is trying to do, like all weaker companies, is to use the government to do for them what they obviously cannot do for themselves.
The Mercury News article also claims that, “U.S. antitrust law permits a company to hold a monopoly, but it forbids a company from leveraging its dominance to restrict competition.†First, the prefix “mono†means one and since AMD is a competitor, then there is no monopoly. Second, trying to “leverage dominance†is competition! Let me be clear: Intel does not hurt or put AMD out of business. I have never met Mr. Intel. It is Intel consumers who are keeping Intel at the top because they think Intel produces a better product at better prices.
Finally, and this is a point I made in a previous Mises.org article, so what if a company like Intel wants to “kill off†its competitors? As long as it does not use the power of government to achieve this goal, then that desire is indicative of competition. In fact, this desire is what ultimately benefits consumers. Of course, critics will argue that if only one firm exists in a market then it will have the power to “overcharge†their customers or “gouge†them or charge “exorbitantly high†prices. I have a question: what is “too high†and what does “exorbitant†really mean? And what or who determines the answers to these questions–some useless mathematical model that bears no resemblance to reality or some bureaucrats in Washington D.C. who are omniscient and know the “true†or “real†price? Moreover, why is it acceptable for consumers to want to pay the lowest price possible but it is immoral when firms want to charge the highest price possible to maximize their profit?
The hours of energy and creativity that companies must waste to address antitrust legal issues is a deadweight loss to the economy. In a free enterprise economy, an economy we supposedly have, there would be no antitrust laws (and many other property rights-violating regulations) and true competition would rule the day.
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Simply getting rid of the anti-trust laws would not allow “competetion to rule the day.”
In fact, getting rid of anti-trust laws, although they are indeed anti-competetive and anti-free market, would only be taking off the top part of the proverbial barrel- there are tons and tons of laws and regulations that are just as anti- competetive and anti-free market.
But I guess I am preaching to the choir, aren’t I? Nothing like stating the obvious…
Good point Dave.
In addition, no monopoly will last forever. Competitors will seek alternative ways of ousting the dominant firm. And there are many firms out there capable of ousting such firms. So the fear of ‘exorbitant’ prices is doubly irrational as the monopoly has to fear these competitors as well.
There are network externalities in computer chips, Intel’s X86 is a de facto standard. This leads to networks lock-in and the end of competition.
This is all relatively new in economics, how to understand network dynamics without turnig them into reguted monopolies. Kevin Kellly’s is a good introduction,
http://www.kk.org/newrules/contents.php
BTW, beyond the economics argument, Intel is a rogue company, read about all the anti-competitive tactics they use.
There are network externalities in computer chips, Intel’s X86 is a de facto standard. This leads to networks lock-in and the end of competition.
This is all relatively new in economics, how to understand network dynamics without turnig them into reguted monopolies. Kevin Kellly’s is a good introduction,
http://www.kk.org/newrules/contents.php
BTW, beyond the economics argument, Intel is a rogue company, read about all the anti-competitive tactics they use.
“Intel is supposedly acting “anti-competitively†because according to the article it offers ‘large discounts to computer makers in exchange for not using products by the rival company…’”
I wish the left would make up its mind. In the “pure competition” model that everyone loves, competing on price alone is supposed to be the good thing. So why are they beating up on Intel for competing on price. They seem to want their Kate and Edith too: they want companies to compete by offering lower prices, but not so low as to actually take business away from a competitor.
Thank God that the NFL is not subject to anti-trust law. If it were, every game would have to end in a tie.
My favorite anti-trust story is the one about Alcoa aluminum where the anti-trust judge wrote that Alcoa was acting in an anti-competitive manner by keeping costs so low and quality so high that no one else could compete! He wanted Alcoa to raise its prices and make shoddy aluminum!
I don’t think von Mises endorsed the “Might is Right” theory of economics. There are rules against abuse of power.
Anyone even vaguely familiar with the semiconductors industry knows about Intel’s abuse of power. This is an interesting article on Intel ways,
http://www.news.com/Intel-Friend-or-foe/2100-1006_3-5851249.html
the current fascist information economy is so far removed from human action in physical property as analyzed by praxeological economics that it makes no sense to think that changing one aspect of the state in relation to such an economy will makes it better or more ‘austrian-prosperous’, considering the role of the state and the restriction of information, as in the ridiculous addiction to patents and non-property derived contracts regarding company secrets
i hate intellectual property, there is no such thing, but this economy has gone virtual. It’s outside the scope of physical property, and outside the scope of freedom. I can’t today start a business without worrying about stepping over a few hundred patents
I don’t think von Mises endorsed the “Might is Right” theory of economics.
I think he did, like any other real economist since the 18th century. Of course, “Might is Right” in this context simply means laissez-faire or complete separation of state and economy.
“…according to the article it offers “large discounts to computer makers in exchange for not using products by the rival company…
All I could think of when I read that was, “Okay, so what’s the problem?” I receive flyers every Thursday from all the local supermarkets. Every one of them is offering lower prices on various items in exchange for not doing business with one of their competitors.
As far as I’m concerned, AMD’s lawsuit amounts to nothing more than harassment. What is unfortunate is that the cost of legal fees will cause price increases.
I receive flyers every Thursday from all the local supermarkets. Every one of them is offering lower prices on various items in exchange for not doing business with one of their competitors.
Not the same thing: those flyers don’t offer lower prices on the condition that you promise never to visit a rival supermarket – you can use the low price on bread at one supermarket and the lower price on milk at another. Not that there’d be anything wrong with it if supermarkets did offer such a deal (though ensuring that you kept your end of the bargain might be a bit difficult – I don’t think I’d sign up); just pointing out that they don’t.
Chuck,
Freedom of contracts sometimes means the freedom to do things that from your perspective seem unfair. However negatively you view Intel’s attempts to secure exclusive rights to sell a product to a given distributor, in the end it should be between Intel and that firm to work out whatever deal they want.
As an aside, no company that refuses to sell AMD will ever get my business, because for my needs, AMD makes a better product. There is a solid demand for AMD and those firms who choose to sell their product will profit as a result.
It seems that everyone is missing the most important thing about anti-trust laws. Government claims that they are to protect consumers but they are actually designed to giver special privilege to the politically connected. There is not one example in history of a company that has come under the judgemental eye of anti-trust that was not giving better and more service to consumers at a lower price.
Anti-trust is actually Fascism in its rawest form and has absolutely nothing to do with creating wealth or satisfying the wants and needs of consumers.
Provided it does not advantage itself of State aid (e.g. IP law) and does not use coercive force, Intel should be able to act as it pleases. If it wants to offer extremely low prices, so be it. What seems to be lacking in an analysis of the IT industry though is to what extent factors other than pure market factors are operative.
Of course, “Might is Right” in this context simply means laissez-faire or complete separation of state and economy.
“might is right” implies that coercion is okay. Laissez-faire, on the other hand, does not imply that coercion is okay, it’s simply unrestricted trade. Thus these are not the same things.
While people certainly talk about the “evil” things or the force a company does, Intel is not using force in this case.
This is on Intel’s abuse of litigation tactics to run small, innovative companies out of business, this company is hurting US global competitiveness,
http://www.eweek.com/article2/0,1895,1833676,00.asp
Michael,
“Might is right” was used as figurative speech. Chuck said that Intel should be regulated, otherwise we’d be endorsing the “might is right” theory of economics – whatever that is.
It seems that for Chuck unbridled competion (laissez-faire) is the same thing as “might is right”. I didn’t say that’s true.
This is from Japan, AMD and Transmeta targeted by Intel.
http://www.news.com/Japan-antitrust-watchdog-bites-Intel/2100-1014_3-5603204.html
The case of Transmeta would be an eye-opener for those not familiar with the effect of anti-competitive tactics. One of the most innovative companies in the last decade now almost out business. Get the facts and think without bias.
I have been checking von Mises because of Ron Paul. I like the man but I wish he knew more about networks, Network effects lead to lock-ins and non-competitive effects. This is in my view one of the most important areas in economics.
http://en.wikipedia.org/wiki/Network_effect
Peter,
Thank you for correcting me on that point…I didn’t realize. Like you, I don’t think there would be anything wrong with someone wanting to make such an agreement. I would, however, prefer to shop wherever I’d like. I was thinking about it…getting the lowest price doesn’t necessarily mean that you will always get the best quality merchandise.
I agree with the author’s comments, except for this line: “The outlandishness of this particular case should be apparent even to non-Austrians.”
I still agree with a healthy competition and no taking of sides by those who are in high position or government appointed officials such as from the FTC.
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