Loyalty discounts and theories of harm in the Intel investigations

Abstract

In its investigation of Intel, the Federal Trade Commission appears to have been pursuing a 'downstream competition' theory of harm, in which Intel Corporation made fixed payments to original equipment manufacturers (OEMs) in exchange for not using AMD processors. This allowed Intel to charge supra-competitive processor prices to OEMs and allowed OEMs to charge supra-competitive computer prices to consumers thereby extracting supra-competitive rents from computer markets. These rents finance the payments for exclusivity. This article uses public documents to illustrate the types of evidence that would be needed to prove the existence of harm under this theory. It also identifies the type of evidence used by the European Commission when it analysed Intel's practices under its As Efficient Competitor Test. Finally, it highlights major differences between the two theories.