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Economist Janusz A. Ordover Supports AMD’s Claims that Intel Monopoly Maintenance Practices Harm Consumers
The following is the unabridged version of a letter to the editor that appeared in the July 29th, 2005 edition of The Wall Street Journal:
Holman Jenkins’ spirited defense of Intel (“Tech Times Are Good, So Why Not File a Lawsuit?” July 20, 2005) represents a fundamental misunderstanding of the economic theory and public policy issues that underlie AMD’s lawsuit against Intel.
Unwittingly perhaps, Mr. Jenkins correctly identifies the competitive concern when he writes that “it costs $2.5 billion to build a new fabrication plant, and hundreds of millions dollars more to design and test a new chip.” He then goes on to argue that these economics apparently justify any business tactic that would enable Intel – which consistently captures about 90% of the revenues and 80% of the global market for x86 processors – to “assure itself sufficient volume to justify such investment.”
Mr. Jenkins also denigrates antitrust as tool for “casually relieving Intel of its right to offer its products on terms of its own choosing.”
But it is well-recognized in economics, and law, that firms with dominant positions (so-called elephants) can use their size to trample not only their rivals but also, and more importantly, consumers.
Mr. Jenkins mistakenly focuses on Intel’s pricing strategies and misinterprets – in fact, gets totally backwards – the economics that underlie the fundamental competitive concerns raised by AMD’s allegations.
AMD’s claim is not that Intel’s prices are too low. It is that Intel engages in pricing strategies that, in the end, result in prices that are higher than those that would emerge in an effectively competitive marketplace. History, as well as economics, has proven that the best path to lower pricing is through vigorous and sustained market competition.
Janusz A. Ordover
Professor of Economics
New York University
Professor Ordover has served as an economic consultant to AMD on antitrust issues.
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