Computer Prices Have Fallen By 90% Over the Last Ten Years: Is That Evidence of Monopoly Power?

WASHINGTON POST — The world’s biggest semiconductor maker yesterday was fined a record $1.45 billion by European regulators for allegedly using its dominance to edge out rivals, a decision that has cast a spotlight on similar investigations by U.S. antitrust watchdogs.

After a five-year review of Intel’s sales tactics, the European Union’s competition commission said the company, with 70% share of the global chip market, gave hidden discounts to computer makers to use its chips and paid the firms not to use those made by competitor Advanced Micro Devices. It also paid a major retailer to stock only computers outfitted with Intel chips, the commission said.

According to Dan Ackerman of CNET News, “Assuming Intel sells the Atom CPU (found in virtually every Netbook) to system makers for around $53, then it would only take 27,169,811 new Netbook sales to make up for the proposed fine.”

MP: The chart above shows montly “CPI for Personal Computers and Peripheral Equipment” back to January 1998 (BLS data via Economagic here). Adjusting for quality improvements, computer equipment today costs only about 10% of what the same equipment cost in 1998. Consumers have never had it better when it comes to affordable computer equipment, so how can it be claimed that Intel is guilty of anti-competitive behavior that is damaging to consumers?

The true anti-competitive behavior of a coercive monopolist that should most concern government officials is when a producer (or group of producers, i.e. cartel like DeBeers or OPEC) restricts output and raises price. In the case of Intel, just the opposite has been happening: microchip output has been increasing, quality and speed have been improving significantly, and prices have been falling dramatically, and consumers have benefited enormously.

How can Intel (INTC) be accused of anti-competitive behavior when it was giving “hidden discounts” to computer makers? A real anti-competitive monopolist, with true market power, possibly insulated from market competition (often because of a grant or license FROM the government), would be in a position to RAISE prices, not LOWER prices.

Unfortunately, in the bizarre world of anti-trust, ANY price can be illegal. The government could accuse a producer of anti-competitive, monopoly behavior when it charges prices that are “too high,” i.e. higher than its competition, but it could also accuse a producer of anti-competitive behavior if its prices are “too low,” i.e. “predatory.” And if a producer happens to charge the same prices as its competitors, it could be charged with anti-competitive behavior of price-fixing or collusion. So producers, you better watch out – whether your prices are higher, lower or the same as your competitors, you could be accused of violating antitrust laws.

About Mark J. Perry 262 Articles

Affiliation: University of Michigan

Dr. Mark J. Perry is a professor of economics and finance in the School of Management at the Flint campus of the University of Michigan.

He holds two graduate degrees in economics (M.A. and Ph.D.) from George Mason University in Washington, D.C. and an MBA degree in finance from the Curtis L. Carlson School of Management at the University of Minnesota.

Since 1997, Professor Perry has been a member of the Board of Scholars for the Mackinac Center for Public Policy, a nonpartisan research and public policy institute in Michigan.

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