The European Commission wielded its heaviest antitrust hammer against Intel, the world’s biggest chipmaker on Wednesday May 13th. The €1.06 billion ($1.45 billion) fine levied on Intel for antitrust abuses is the Commission’s biggest ever punishment and represents just under 4% of Intel’s revenues in 2008. The chipmaker was charged with using a system of discounts and rebates to encourage computer-makers and retailers to sell only a limited number of machines powered by chips made by AMD, Intel’s only remaining serious rival in microprocessors for personal computers. The Commission says that “millions of European consumers” suffered as a result of the anitcompetitive behaviour. Intel has said that it will appeal.
The case against Intel was tricky. Offering discounts and rebates is common in many industries, so the case hinged on whether Intel attached conditions to such rebates that constituted an abuse of its market position. The Commission determined that the rebates were indeed illegal though Intel can continue to offer legal rebates. It is unclear whether any harm has been done: prices for chips continue to fall, innovation has not slowed and AMD has increased its market share slightly in recent months. And certain remedies could actually limit competition. Limiting discounts, for instance, might in effect create a price floor for AMD, given that it is Intel’s only competitor.
Intel’s case is far from isolated. In early June Microsoft will defend itself in a hearing in Brussels against accusations that it illegally bundled its web browser with its Windows operating system-the very practice that got the software company into trouble in the late 1990s. IBM, the target of trustbusters since the 1950s, faces a new antitrust complaint. And Google, the industry’s newest giant, is also coming under closer scrutiny. In April it emerged that America’s Justice Department is examining whether Google’s settlement with authors and publishers over its book-search service violates antitrust laws; and on May 5th the Federal Trade Commission (FTC) launched a probe to see whether Google’s sharing of two board members with Apple reduces competition between the two firms.
The computer industry makes more antitrust headlines than others for three reasons. First, technology heavyweights are often dominant in their respective markets. The firms say that it is a result of billions spent on research and development. But they also operate in markets that allow a winner to take all (or most). Mainframes and operating systems benefit from strong network effects: the more applications run on them, for instance, the more users they attract, which encourages programmers to write more applications for them. With microprocessors, ever-increasing capital requirements mean only the biggest firms can afford to build their own factories. The markets for search and online advertising exhibit similar effects: the bigger a firm’s market share, the greater its ability to attract advertisers, thus bringing in the money to build ever bigger data centres. In each case it is difficult for an upstart to break in.
But it is not impossible. A second characteristic of the industry is that dominant positions can be undermined by technological progress. Because they cannot afford to rest on their laurels, high-tech heavyweights often foster aggressive corporate cultures that draw the attention of antitrust regulators. Fear of being supplanted was also behind Microsoft’s decision in the late 1990s to bundle its web browser, Internet Explorer, into Windows.
Problems with antitrust will continue to dog the industry for the simple reason that companies are increasingly using it as a competitive weapon, alongside other instruments such as patent lawsuits and battles over standards. As it lost market share to Intel, for example, AMD launched a global campaign to get regulators to examine its rival’s behaviour. Similarly, antitrust lobbying is part of a broader “platform war” for IBM, which hopes thereby to keep Microsoft at bay. Not to be outdone, Microsoft has entered the antitrust game, too.
That is not to say that the antitrust cases that are now under way are without merit but regulators must make decisions about whether consumers not just competitors are hurt. It seems unlikely that the antitrust thing will blow over any time soon.