Anti-Trust is Anti-Consumer

Pursuing what has become a familiar theme on Coyote Blog, we again revisit anti-trust, and in the process, discover why the NY Times might be better off putting its editorial inanities back behind a firewall.

Writing about Intel, the NY Times editors say:

The abuse of market power to protect a monopoly hurts consumers and
hinders innovation "” locking out smaller rivals that may have better
products with new features or lower prices. With an 80 percent to 90
percent share of the microprocessor market, Intel wields much more
power than your local supermarket. Its threat to raise prices the
moment a customer tries to buy from rival A.M.D. can lock in even the
largest computer makers "” which depend on Intel for most of their
products and can't simply swap all their processors overnight. And with
such a level of control, Intel doesn't have to exert itself to come up
with new and better products.

Which I guess is why Lotus 1-2-3 must still have a hammerlock on the spreadsheet market, Creative must still dominate in MP3 players, IBM must still own the computer market, and GM must still rule the automotive roost.  How can any sentient human being who has lived through the past 20 years doubt that, particularly in technology, market dominance is as fleeting as the next technology cycle.   In fact, AMD several years ago made a huge penetration of the market with a series of processors a year or two ahead of Intel.  Most average consumers who can't even figure out how to attach a photo to an email never noticed, but among those who understood and cared, AMD ruled the roost.

Oh, and what was Intel's crime?

They say Intel is improperly protecting its stranglehold of the
microprocessor market by offering big discounts and rebates to computer
makers who minimize the use of processors made by rival Advanced Micro
Devices, and punishing those who stray with higher prices.

Oh my god, they are offering discounts to loyal customers!  Don Boudreax gets right to the heart of it:

Monopolists raise prices; firms facing competition do not.  Intel keeps its prices
low, meaning that it behaves competitively.  Yes, Intel's pricing
practices make life more difficult for AMD and other rivals, but that's
what competition is supposed to do.

The popular myth is that anti-trust policy is about protecting consumers.  Well, it may have been at one time or another, but currently it is all about protecting competitors who have political pull.  The Europeans are shameless about this, using anti-trust as a bludgeon to hamstring US companies who are out-competing EU home-grown competitors.  Now the NY Times wants to emulate this practice, explicitly calling on the government to force Intel to raise prices to make things easier for its competitors.

Update:  By the way, is there anyone out there who thinks Dell or H-P don't get the best possible pricing from Intel, with or without AMD purchases?  The coy little personal shopping example in the opening paragraph of the editorial is probably to help the reader forget that we are talking about Intel selling to customers who are big boys too.

  • morganovich

    it never ceases to amaze me that the same people who scream about the evil of monopolies and their stifling of innovation support precisely that when it comes to schools, transport, tax collection, and many many other things so long as the monopolist is the government.

    many even go on to imagine new monopolies like health care.

    while there may be an example that has not occurred to me, i cannot think of a single service provided by the government (except where they have functional monopolies) that is superior to that of private industry.

  • morganovich

    it never ceases to amaze me that the same people who scream about the evil of monopolies and their stifling of innovation support precisely that when it comes to schools, transport, tax collection, and many many other things so long as the monopolist is the government.

    many even go on to imagine new monopolies like health care.

    while there may be an example that has not occurred to me, i cannot think of a single service provided by the government (except where they have functional monopolies) that is superior to that of private industry.

  • Streaker

    Funny that they say about Intel- "Intel doesn’t have to exert itself to come up with new and better products." Just as it was announced that Intel fired up it's latest plant in Chandler churning out their latest and greatest processors- http://www.engadget.com/2007/10/29/intels-core-2-extreme-qx9650-review-roundup-confirms-the-45nm-p/

  • Bearster

    To anyone who believes in anti-trust, I have a simple question. Can you define "anti-competitive" so it isn't just "very competitive"?

    The pushers of anti-trust mythology-Repubs and Demos-have a serious victim mentality. Get over the envy, live and let live!

  • bob

    Anti-competitive...that would be where Intel made slower, worse CPUs and charged more for them. Hmmm.

  • DKH

    I've been in Phoenix the past two weekends and caught the articles in the AZ Republic about Intel's new fabrication center. The first week discussed the great new technology they were about to introduce. Then, the next week (10/28), there was a blurb about how rapidly the new fabrication center would be producing obsolete electronics, and that for all its cost, it would be producing auxiliary products.

    It's a good thing Intel doesn't have to exert itself to develop these new products, or consumers might be paying more for their processors.

    I don't know about the market in pre-built computers, but it seems to me that AMD has had cheaper consumer processors than Intel (comparing their dual core processors or the AMD Athlon 64 against the Pentium D). So far as I know, Intel's processors perform better and are cooler, but to the average consumer, I doubt this matters. Point is, it doesn't seem like Intel is dropping prices in an "anti-competitive way," so as to keep others out of the market.

  • DKH

    The previous comment refers to cooler, temperature-wise, not cooler as in "more hip".

  • la petite chou chou

    I wonder if the person who wrote that anti-Intel article has an Intel processor in his/her computer...I mean, he should probably demand his company get him a new computer with an AMD, that way he can feel good about helping out the little guy.

  • Bearster

    DKH: You put the word "anti-competitive" in scare quotes, and yet use it as if it had an actual meaning. Could you define "anti-competitive" so that it doesn't look like "very competitive"?

    In any competition, there is a winner and loser(s). You can't define "anti-competitive" to mean when a company wants in order to make another company lose (as opposed to when it wants to win for some other reason!)

    The only kind of anti-competitive action is when the government creates rules which it enforces at gunpoint.

  • DKH

    Bearster: By placing "anti-competitive" in quotes, I simply meant any action that would justifiably incur penalty under anti-trust legislation. My point was that Intel was not taking actions that were anti-competitive.

    For example, Wal-Mart is accused by some (yes, that is generic, and no, I don't believe this is true) of lowering prices when it opens a store in order to drive competitors out of business. When competitors are gone, it (according to accusations) raises prices above their previous level. This is considered to be "anti-competitive" behavior, because prices were lowered to drive out competitors, not to deliver better value to consumers. Intel does not seem to be doing this.

    My understanding of "anti-competitive" is that it describes any action that pushes the market away from pure competition or monopolistic competition, and toward oligopoly or monopoly. That is, any action that is intended to eliminate firms (and maybe reduce product diversity? that would sure be tough to define legislatively). This is not a terribly well-thought definition, just my understanding. Certainly, a "very competitive" firm might satisfy this definition of "anti-competitive." I'm not advocating anti-trust policies.

  • Bearster

    DKH: Thanks for your response.

    My point is that one cannot define lowering prices "to" hurt competitors as illegal but define lowering prices "to" deliver better value as legal. An act is what it is, without attributing the alleged intentions to it.

    Either companies can set prices or not.

    As to "pure" or "perfect" competition theory, the problem is that this is an unreal theory. That it has never existed in reality doesn't stop its proponents from urging for anti-trust law and enforcement.

    Take a look at producer diversity. In 1800, there were many small farms, probably almost as many farms as families. Today, due to the result of ______ behaviors, we have far fewer farms, which are larger. Oh, and the quality of produce is higher and the price is lower. Does ____ stand for competitive or anti-competitive?

    OK, moving on. That's just diversity of producers. What about diversity of products. 25 years ago, there were many operating systems and hardware platforms for personal computing and workstations. Apple 2, Macintosh, TRS-80, Apollo, Sun, etc. Today there is far less diversity of product. Quality (performance) is higher, and price is lower. Was this anti-competitive or competitive?

    This is intrinsicism. Fewer producers or products is neither better nor worse. The idea of a free market is that people are free to vote with their dollars.

  • Reformed Republican

    Let me get this straight: because the FTC wants to avoid a hypothetical situation where Intel dominates the market and raises prices, the FTC forces Intel to raise prices?

  • http://mdahmus.monkeysystems.com/blog/ M1EK

    Please, spare us from history lessons from those who don't understand history.

    MS was able to thrive precisely because of antitrust enforcement against IBM (although the case was eventually dropped, it affected essentially every non-trivial decision the company made for over a decade). MS killed the prospect of truly network-centered computing from the Sun/Netscape alliance by destroying Netscape through anti-competitive behavior (after doing the same thing to OS/2, because IBM was too internally hamstrung by anti-trust phobia to fight back).

  • Zach

    "MS was able to thrive precisely because of antitrust enforcement against IBM (although the case was eventually dropped, it affected essentially every non-trivial decision the company made for over a decade). MS killed the prospect of truly network-centered computing from the Sun/Netscape alliance by destroying Netscape through anti-competitive behavior (after doing the same thing to OS/2, because IBM was too internally hamstrung by anti-trust phobia to fight back)."

    No, Netscape was destroyed because it made a shittier browser after it and IE went to version 4 (and especially 5). And even if IBM was hamstrung by anti-trust phobia, whose fault is that, Microsoft's or the government's? Also, spend a week programming in Javascript before you talk about how Netscape was so great.

  • http://mdahmus.monkeysystems.com/blog/ M1EK

    Zach,

    With all respect, you have no clue - Netscape wasted a lot of time on that ill-fated portal strategy (making their browser suffer) precisely because MS destroyed the market for non-free browsers. And the message from IBM's experience was that those who think MS's rise disproves monopoly theory don't understand that IBM's monopoly was stopped by the government, not by the market.

  • Zach

    Netscape took a gamble and lost. That's business. You weep for Netscape and curse Microsoft, but how much did the web benefit from free web browsers? Where would we be today if we all had to shell out $40 for the latest browser? You're like the people who bitch at Wal-mart for having low prices. Lower prices always benefit the consumer...always.

    And if Microsoft "destroyed" the market for free browsers, how do you explain Firefox, Opera and Safari?

  • http://mdahmus.monkeysystems.com/blog/ M1EK

    "And if Microsoft "destroyed" the market for free browsers, how do you explain Firefox, Opera and Safari?"

    They destroyed the market for browsers. (Seriously, how can you even write "market for free browsers" without realizing you're proving my point?)

    Firefox, Opera, and Safari exist because their makers want them to - they are not particularly responsive to end-users in many respects. That's not a market - it's a charity.