FTC Complaint Against Intel

In December, the Federal Trade Commission (FTC) filed suit against Intel charging it with a “systematic campaign to shut out rivals’ competing microchips by cutting off their access to the marketplace.” The FTC claims that Intel, which currently has about 80 percent of the worldwide CPU (central processing unit) market, used threats, bundled price discounts and other incentives to foreclose competition from rival chip manufacturers. Intel allegedly used its dominance in the market for the microprocessing chips that constitute a computer’s CPU to prevent GPU (graphics processing unit) chips manufactured by competitors, such as Advanced Micro Devices and Nvidia, from gaining a foothold in the market. The FTC also alleges that Intel intentionally designed software that would hinder the performance of competitors’ chips.

Intel responded to the complaint with a statement that the FTC case was “based largely on claims that the FTC added at the last minute and has not investigated.” It further responded that it operates in a highly competitive market that has benefitted consumers through robust innovation and declining prices.

In the suit, the FTC claims that, when customers with patent rights for microprocessing technologies declined to license to Intel, Intel repeatedly sought to punish such customers by refusing to provide them with pre-release information. To enable its customers to provide the most up-to-date technology in their products, Intel would provide favored customers access to the technical information necessary to design computer systems around a new Intel microprocessor before the release of that chip. In this way, as soon as Intel introduced the chip, favored computer manufacturers would be able to market their products as having the latest technology.

This complaint also seems to be an attempt by the FTC to more strictly regulate volume discounts and bundling discounts provided by firms with market power. Firms often give volume discounts to large customers, but the FTC claims that Intel offered volume discounts only to certain customers specifically to eliminate competition in the CPU market. In addition, according to the FTC, Intel charged a bundled price for its CPU and chipset with integrated graphics that was below-cost to eliminate competition from Nvidia. The FTC complaint defines cost as “average variable cost plus an appropriate level of contribution towards sunk costs,” while many economists believe that in the short run a firm need only cover its variable costs.

Allison I. Holt, a Senior Economist in EI’s Washington, D.C. office, has extensive experience in competitive analysis and in analyzing pricing data in class certification, price fixing cases, and damages analysis.