Good Example Of Were Intel’s Rebates Unethical? Explain Why Or Why Not. Case Study
What is central processing unit? Central processing unit – is a small electronic device, which looks like chip. CPU is usually considered as the main attribute of computer. CPU usually refers to head or brain, as it does all major (from basic to complicated) operations. CPU has different names such as computer chip, processor or microprocessor, etc.
Nowadays, there is only two companies, which can produce computer processors. Those two are AMD and Intel. There are several obstacles for other companies to compete with these two. First one is – patents. Both AMD and Intel hold those. Second one is money. To implement a new idea of making the company, a man should invest billions of dollars to build factories, which will be specified on making CPU. The third obstacle is market share. AMD and Intel has been on market for many years and bringing a new company would be a total failure. You won’t have enough resources and experience to hold the market share.
In 2009, Intel had been suede. A lawsuit came from another leading chipset company - AMD. AMD proclaimed that Intel was using monopoly and monopoly resources. AMD stated that Intel used this sources to keep computer companies from buying AMD microprocessors. There were also other sources that also had sued Intel. European Commission, New York Attorney, South Korea Fair Trade Commission and others proclaimed that Intel used their sources from making other companies from buying AMD chipsets. Paul Otellini, Intel’s CEO had agreed to pay $1.25 billion and stated, that Intel don’t want to spend more time and money on figuring out what was the real cause. He also didn’t take responsibility for violating AMD rights and using monopoly.
The whole story begins in late 1990s. Intel did spent a lot of money developing a processor which will not use x86 system technologies. “x86” is a type of code, which is written for processor to follow. It can be referred as instructions. At that point all processors were x86 type which allowed for different CPU’s to run same programs, which they ran before, without having any issues with it. Intel saw a disadvantage in this. AMD could make better processor, which could ran exact same programs, but faster. This was a major fear for Intel. As time passed they came with new processor, which didn’t use x86 technology. Its name was Itanium. Itanium had major disadvantage. To be able to run x86 technology programs, Itanium has to start emulation process. Emulation imitates x86 processor, but slows down the speed of corresponding and sometimes made it impossible to wait. At same time AMD stays calm and remains on working market of x86 processors. AMD creates new processor – Athlon. Athlon was way cheaper and faster. It also used much less electricity.
In 1999 Intel faced their worst nightmare that they could imagine. Every other computer manufacturer wanted to use Athlon in their PC’s. Intel market share dropped from 90 percent to 74 percent, while AMD risen to 25. But this AMD triumph didn’t last for a long time. In 2004 they faced a total collapse. Computer manufacturers stopped buying Athlon processors at all. And the question what was the main cause arises. Tom McCoy, AMD’s executive vice president for legal affairs writes an article stating that Intel used their power which brought AMD Athlon processors out of the market. McCoy stated that Intel paid millions of dollars to such companies as Sony, NEC and Toshiba. He pointed out that those payments made computer manufactures to stop buying AMD chipsets at all. McCoy stated that those payments were like “rebates”. In word “rebate” he is trying to tell that those were not the discounts for buying dozens of Intel chipsets, but bribe. Another thing that should be mentioned, that McCoy wrote about was Intel threats. The Intel Company could threaten computer manufacturers from supporting them at all. In 2005, Bruce Sewell, Intel’s general legal counsel, proclaimed that AMD had faced a wall because their processors would not work fast as they seemed to be.
In 2009, Federal Trade Commission (FTC) started an investigation and also proclaimed that Intel used monopoly sources to ban AMD from market. FTC found interesting fact. The problem why programs were running slow was not AMD processors, but the program code, which were sold by Intel. That code made AMD processors not compatible with software and slowed it down. The other claim was that Intel inserted a small bugs which made AMD work slower but not Intel.
Intel had increased their market share in billions when they found a new contract with Dell. Everything stopped because Dell was losing the market. In 2006 Dell signs a new contract with AMD for making Alienware – a high-tech gaming computers. Intel lowered year payments, but later on they canceled them at all. Hope for AMD was restored.
In your judgment is Intel a “monopoly”? Did Intel use monopoly-like power; in other words, did Intel achieve its objectives by relying on power that it had due to its control of a large portion of the market? Explain your answers.
I think that Intel used “monopoly” in their doings as hard as they could and achieved their objectives by relying on the power. First of all they wrote a bits of code that made AMD processors looking slow. The other one was threatening to support computer manufacturers from supporting through rebates. This is dirty play.
In your judgment, were Intel’s rebates ethical or unethical? Explain your answer.
Intel rebates are unethical. They made the companies to buy their chipsets not on their personal will. Using this kind of force is not an option.
Was it unethical for Intel to use its compilers and its libraries of software code in the way it did, or is this permissible for companies in a free market economy? Explain your answer.
Yes, it was unethical for Intel to use its compilers and its libraries of software code in the way they did. Making other manufacturer company chipset looking slow, because of your dirty play is not ethical. The company would look ethical, if Intel made better chipset and that product showed better results in every aspect, working with x86 systems or x64.
In your view, did Intel violate either of the two key sections of the Sherman Antitrust Act? Explain.
According to Transcript of Shermal Anti-Trust Act (1890) section 2 - “Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a misdemeanor, and, on conviction thereof; shall be punished by fine not exceeding five thousand dollars, or by imprisonment not exceeding one year, or by both said punishments, in the discretion of the court. “, we can make a conclusion that Intel violated AMD rights. Using strong methods they attempted to throw AMD out of the market (Ourdocuments.gov, 2015).
Intel’s “Rebates” and Other Ways It “Helped” Customers (1st ed.). PDF
Ourdocuments.gov,. (2015). Welcome to OurDocuments.gov. Retrieved 11 February 2015, from http://www.ourdocuments.gov/doc.php?doc=51&page=transcript
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