CASE STUDY 03

Intel’s “Rebates” and Other Ways It “Helped” Customers

NAME: MAMEEZA SHEIKH

STUDENT ID: 1202221007

PROGRAMME: BACHELOR OF BUSINESS MANAGEMENT (INTERNATIONAL

BUSINESS) HONOURS

SCHOOL / FACULTY: SCHOOL OF BUSINESS AND MANAGEMENT

COURSE CODE / TITLE: BIB 3074 – ISSUES AND ETHICS IN INTERNATIONAL

BUSINESS

INTAKE: MARCH 2022

SEMESTER: 09
 1. 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.
ANSWER:

Intel has long dominated the semiconductor industry, especially in the market for central
processing units (CPUs) used in personal computers and servers. However, Intel's position as a
dominant player has raised concerns about monopolistic behavior and anti-competitive practices,
particularly in its rivalry with AMD (Advanced Micro Devices), its primary competitor. Over the
years, Intel has used its market power to influence competition with AMD, and these actions have
led to legal challenges and antitrust lawsuits in multiple countries. Here’s a detailed breakdown of
Intel’s competitive strategies, legal controversies, and the effects on its market position:

1. Intel’s Dominant Market Position

Intel is one of the most established and influential companies in the semiconductor industry. It has
achieved a dominant market position through a combination of technological innovation, extensive
production capabilities, and strategic partnerships with computer manufacturers. This strong
market position has often led to Intel being viewed as a monopoly, especially given its substantial
market share compared to AMD and other competitors.

 Market Control: Intel’s CPUs are widely used by major computer manufacturers, giving
it significant control over the personal computer and server markets. This market power
has allowed Intel to influence industry standards and maintain a competitive advantage
over smaller rivals.
 High Barriers to Entry: The semiconductor industry has very high barriers to entry due
to the massive capital investment required for research, development, and manufacturing.
Intel’s established infrastructure and market reach make it challenging for other companies,
including AMD, to compete on equal terms.
 Influence Over the Ecosystem: Intel’s dominance extends beyond CPUs to other parts of
the computer ecosystem, including chipsets and networking technologies. This broad
 influence gives Intel additional leverage in its relationships with manufacturers, helping it
retain control over industry standards and product specifications.

2. Anti-Competitive Practices and the Use of Rebates

Intel has been accused of using its market power to stifle competition from AMD through a variety
of anti-competitive practices, including exclusive deals and rebates to computer manufacturers.
These practices have been central to the legal controversies surrounding Intel’s business tactics.

 Conditional Rebates: Intel provided rebates to computer manufacturers (such as Dell, HP,
and Lenovo) under the condition that they primarily use Intel processors rather than AMD’s.
These rebates, though financially appealing to manufacturers, discouraged them from using
AMD products, effectively limiting AMD’s access to the market. By offering rebates, Intel
created a financial incentive for manufacturers to favor Intel processors, even if AMD
offered comparable or better products.
 Exclusionary Contracts: Intel also entered into exclusive contracts with some computer
makers, ensuring that these companies would use Intel chips exclusively. This restricted
AMD’s ability to expand its customer base and limited consumer choice in the market.
Exclusive agreements further reduced AMD’s market share and hindered its ability to grow
as a competitive alternative to Intel.
 Impact on Competition and Innovation: By limiting AMD’s market access, Intel’s
actions potentially stifled innovation. When one company has a near-monopoly, it can slow
down innovation because there is less pressure to improve. Intel’s practices restricted
AMD’s ability to invest in research and development, which could have led to
technological advances and more competitive products in the CPU market.

3. Legal and Antitrust Challenges

Intel’s anti-competitive practices eventually attracted the attention of regulatory bodies and
resulted in legal challenges and antitrust lawsuits in multiple countries. These lawsuits highlighted
Intel’s alleged monopolistic behavior and challenged its rebate practices as violations of antitrust
laws.
  European Union Antitrust Case: In 2009, the European Union fined Intel €1.06 billion
(approximately $1.45 billion at the time) for engaging in anti-competitive practices that
violated EU antitrust laws. The European Commission found that Intel had offered rebates
to computer manufacturers that limited their use of AMD processors, thereby restricting
competition. This fine was one of the largest ever imposed by the EU on a technology
company, underscoring the severity of Intel’s actions.
 United States Federal Trade Commission (FTC) Lawsuit: In 2009, the U.S. FTC filed
an antitrust lawsuit against Intel, accusing the company of using its market dominance to
stifle competition. The FTC alleged that Intel had used rebates and other tactics to lock out
competitors like AMD. In 2010, Intel reached a settlement with the FTC, agreeing to
change some of its business practices to promote competition in the market.
 South Korean Fair Trade Commission (KFTC) Case: In 2008, the KFTC fined Intel
$25 million for anti-competitive practices, including offering rebates to manufacturers who
limited or stopped purchasing AMD products. This case further demonstrated Intel’s use
of financial incentives to maintain its market dominance.

4. Intel’s Retention of Market Position Despite Controversy

Despite these legal challenges and the significant fines imposed by regulatory authorities, Intel
managed to retain its leading position in the CPU market. Several factors contributed to Intel’s
continued dominance, even amid controversies surrounding its business practices.

 Technological Advantage and Brand Reputation: Intel’s reputation as a high-quality,

reliable CPU manufacturer has contributed to its sustained market position. Many
consumers and manufacturers associate Intel with cutting-edge technology and superior
performance, which gives it an advantage over competitors, including AMD. This strong
brand loyalty has helped Intel maintain its market share, even as legal issues unfolded.
 Financial Resources and Resilience: As one of the world’s largest technology companies,
Intel has substantial financial resources, which have allowed it to absorb fines and
settlements without significantly impacting its operations. Intel’s financial strength has
enabled it to continue investing in R&D, maintaining its technological edge over
competitors and reinforcing its market position.
  Changes in Business Practices: In response to legal challenges, Intel adjusted some of its
business practices to comply with regulatory standards. These changes, along with
settlement agreements, have helped Intel avoid further penalties while continuing to
operate in a highly competitive market. Although Intel’s competitive tactics came under
scrutiny, these adjustments allowed it to remain compliant with antitrust laws while
maintaining its market leadership.

5. The Ongoing Intel-AMD Competition

Although Intel retained its dominant position, AMD has made significant strides in recent years,
particularly with its Ryzen and EPYC processors, which offer competitive performance at a lower
cost. AMD’s resurgence has led to renewed competition in the CPU market, demonstrating that
Intel’s dominance is not absolute.

 Innovation and Product Development by AMD: AMD has focused on innovation and
price-performance advantages, which have resonated with consumers and businesses alike.
AMD’s recent processors have narrowed the performance gap with Intel, providing
customers with more choices and forcing Intel to innovate further to maintain its market
share.
 Consumer Demand for Choice: Consumers have increasingly demanded options beyond
Intel, and AMD’s improvements have met this demand. As a result, major computer
manufacturers have started offering AMD-powered products alongside Intel-based ones,
creating a more competitive environment in the CPU market.
 Impact of Legal Scrutiny on Intel’s Practices: The regulatory scrutiny Intel faced has
also had a lasting effect, pushing the company to adopt more transparent and competitive
business practices. This shift has helped create a more level playing field, benefiting
consumers and encouraging greater competition between Intel and AMD.
2. In your judgment, were Intel’s rebates ethical or unethical? Explain your answer.
ANSWER:

In my judgment, Intel’s use of rebates was unethical because these rebates were not purely
discounts or incentives based on performance but were instead a deliberate strategy to stifle
competition and limit consumer choice. Here’s why:

1. Intent to Undermine Competition

Intel's rebates were specifically structured to discourage computer manufacturers from

using AMD’s processors by financially incentivizing them to purchase Intel CPUs
exclusively or predominantly. This wasn’t simply a case of rewarding loyal customers.
Instead, it was a calculated move to prevent AMD, Intel’s main competitor, from gaining
market share. By restricting AMD’s access to major manufacturers, Intel limited AMD’s
growth potential and manipulated the market in its favor. This form of exclusivity harms
competition by blocking rivals, which goes against ethical business practices that support
fair competition.

2. Misleading Consumers

Intel’s rebate strategy ultimately misled consumers by limiting their options in the market.
By financially incentivizing manufacturers to choose Intel over AMD, even if AMD had
competitive or superior products, Intel reduced consumer choice. Many consumers may
not have been aware of AMD as a viable alternative or may have assumed that Intel
products were the only reasonable choice, even when this was not the case. Ethical business
practices should prioritize the best interest of the customer, and in this case, Intel’s rebates
resulted in fewer options for consumers, compromising their ability to make informed
decisions.

3. Violation of Fair Market Principles

Free and fair markets thrive when companies compete on the merits of their products.
Intel’s use of rebates to block AMD from fair competition is an example of anti-
 competitive behavior. Rather than letting the market decide based on product quality, price,
and performance, Intel used its financial power to influence the market artificially. This
undermines the principles of a free market, where competition should drive innovation and
value for consumers. Ethical companies should respect market dynamics rather than
manipulating them to suppress competitors.

4. Legal and Regulatory Implications

Intel’s rebates led to multiple antitrust investigations and fines, including significant
penalties from the European Union. The fact that Intel’s practices were found to violate
competition laws in several countries further demonstrates that these rebates were not in
line with ethical standards. Legal rulings against Intel’s rebate practices support the notion
that these tactics went beyond acceptable business incentives and crossed into unethical,
anti-competitive behavior.

3. 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.
ANSWER:

Intel’s actions with its software, specifically its compiler and performance libraries, have raised
significant ethical concerns and allegations of unfair competition. These practices reveal a
calculated attempt by Intel to leverage its software to disadvantage AMD and protect its own
position in the CPU market. Here’s a detailed exploration of Intel’s practices and why they are
viewed as unethical and anti-competitive:

1. The Role of Intel’s Compiler and Libraries

A compiler is a crucial piece of software that translates high-level programming code into machine
code, which is then executed by a computer's processor. Intel’s compiler, along with its
performance libraries, is designed to optimize software performance on Intel processors. However,
Intel engineered these tools to detect when they were running on non-Intel CPUs, like those
manufactured by AMD, and to perform differently based on that detection.

 Selective Optimization: Intel’s compiler would automatically generate code that was
optimized for Intel processors but less optimized for AMD processors, even if AMD’s
hardware could technically handle the optimized instructions. As a result, software
compiled with Intel’s tools would run more slowly on AMD processors, creating a
perception that AMD’s hardware was inferior in performance.
 Impact on Benchmarking and Perceived Performance: Many software applications and
benchmarking tools rely on compilers to evaluate CPU performance. Because Intel’s
compiler intentionally hindered performance on AMD CPUs, benchmarks compiled with
Intel’s tools would show Intel processors outperforming AMD, even if the AMD
processors were capable of comparable or superior performance. This manipulation
skewed public perception, making it appear as though Intel processors were significantly
better, when, in fact, the performance disparity was artificially created by Intel’s software.

2. Unfair Competitive Practices Against AMD

Intel’s manipulation of its compiler and libraries can be viewed as a calculated attempt to harm
AMD’s reputation and sales. By hindering the performance of AMD processors, Intel unfairly
influenced the market’s perception of AMD’s capabilities, despite AMD producing competitive
products.

 Damaging AMD’s Market Position: AMD’s success in the CPU market depends on being
recognized as a viable alternative to Intel. By sabotaging AMD’s perceived performance,
Intel discouraged consumers and businesses from choosing AMD processors, thereby
limiting AMD’s ability to gain market share. This tactic restricted AMD’s growth and
reinforced Intel’s dominance, reducing competition and innovation in the CPU industry.
 Ethical Concerns: In a fair market, companies should compete on the merits of their
products. Intel’s use of its compiler to undermine AMD’s performance is an example of
anti-competitive behavior that goes beyond fair business practices. Rather than improving
its products to meet consumer needs, Intel attempted to control how consumers viewed
 AMD’s products by artificially lowering their performance, which is deceptive and
unethical.

3. Impact on the Free Market

Intel’s actions raise serious concerns about the health of the free market in the semiconductor
industry. A truly free market relies on fair competition, where consumers can choose products
based on genuine performance and value. However, Intel’s practices with its compiler and libraries
distorted this market dynamic.

 Restricting Consumer Choice: By skewing performance in favor of Intel processors, Intel

limited consumers’ access to accurate information about AMD’s products. This
manipulation led consumers to believe that Intel’s processors were always superior, even
when AMD released competitive or superior products. As a result, many consumers may
have chosen Intel processors under false pretenses, undermining their freedom to make
informed choices.
 Suppressing Innovation: When companies engage in anti-competitive practices, it
reduces incentives for innovation. If Intel can retain its market dominance by sabotaging
AMD’s products rather than improving its own, it has less motivation to innovate and
deliver new, better-performing products. This stagnation ultimately harms consumers, who
miss out on the benefits of genuine competition, such as lower prices, increased product
quality, and faster technological advancements.

4. Intel’s Reaction to AMD’s Competitive Products

At various points, AMD launched processors that rivaled or even outperformed Intel’s products.
For example, AMD’s Athlon processors in the early 2000s offered strong competition to Intel’s
Pentium line, and more recently, AMD’s Ryzen and EPYC processors have been praised for their
performance and value. Rather than responding with healthy competition, Intel sought to maintain
its market position through underhanded tactics.
  AMD’s Innovations: AMD has consistently introduced products that push the boundaries
of processor technology, such as multi-core processors, efficient energy usage, and
advanced architectures. These innovations have sometimes allowed AMD to outperform
Intel in specific benchmarks, offering a strong alternative to Intel products. When AMD’s
products succeeded in challenging Intel’s dominance, Intel’s response was not solely to
improve its technology but also to undermine AMD’s achievements through software
manipulation.
 Refusal to Accept Market Dynamics: Intel’s inability to accept that AMD might
occasionally lead in performance reflects a lack of respect for the natural ups and downs
of a competitive market. In a healthy industry, companies expect to encounter fluctuations
in market leadership based on technological advancements and changing consumer
demands. Intel’s efforts to control the market narrative by undermining AMD through its
compiler show an unwillingness to accept these dynamics, which stifles the natural
competitive cycle that benefits consumers.

5. Regulatory Scrutiny and Legal Implications

Intel’s actions with its compiler and libraries have not gone unnoticed by regulatory bodies, and
they have contributed to the broader antitrust investigations into Intel’s business practices. By
intentionally designing software to harm a competitor, Intel’s tactics raise questions about
monopolistic practices and anti-competitive conduct.

 Antitrust Investigations: Regulatory bodies, including the European Union, the U.S.
Federal Trade Commission, and others, have investigated Intel’s practices. These
investigations highlight the ethical and legal concerns surrounding Intel’s behavior, as such
tactics violate the principles of fair competition. Intel’s manipulation of its compiler adds
another layer to these concerns, suggesting that Intel engaged in a coordinated effort to
prevent AMD from succeeding in the market.
 Potential Violations of Competition Law: Anti-competitive practices, including
manipulating software to disadvantage competitors, can be considered violations of
competition law in many jurisdictions. If proven, such actions could lead to significant
fines, restrictions on Intel’s business practices, and requirements for transparency in how
 Intel’s software operates. These penalties are designed to protect competition and ensure a
level playing field for all companies in the market.

6. The Ethical Responsibility of Technology Companies

Intel’s actions illustrate a broader issue about the ethical responsibilities of large technology
companies. In an industry with significant market power, companies have an ethical duty to
compete fairly and transparently, promoting an environment where innovation and quality drive
success.

 Transparency in Software Development: Companies like Intel must ensure that their
software tools, such as compilers and libraries, are developed and marketed in a way that
does not deceive consumers or harm competitors. Transparency in how these tools function
would allow consumers and developers to make informed choices and avoid unintentional
biases against particular hardware.
 Commitment to Fair Competition: Competing on the merits of one’s products is a
fundamental ethical principle in business. By designing software to unfairly disadvantage
AMD, Intel violated this principle, compromising the integrity of the market and
potentially harming consumers who were led to believe that Intel’s processors were
inherently superior. Intel’s actions suggest a disregard for the ethical standards expected in
a fair and open market.
 Consumer Trust and Reputation: Manipulating software to distort product performance
can damage a company’s reputation and erode consumer trust. For Intel, being known for
such tactics could undermine consumer confidence in the company’s commitment to fair
competition and innovation. Consumers value companies that prioritize honesty and
transparency, and Intel’s actions risk alienating customers who prefer ethical business
practices.
4. Were Intel’s rebates unethical? Explain why or why not.
ANSWER:

Yes, Intel's rebates were unethical because they were strategically designed to stifle
competition and limit consumer choice. Instead of offering rebates as a fair market
incentive, Intel used them to create financial incentives for computer manufacturers to
exclusively use Intel processors, effectively blocking AMD, its main competitor, from
gaining market access. This unfair manipulation skewed the market by discouraging
manufacturers from choosing AMD, even when AMD products were competitive or
superior in performance. As a result, Intel’s actions restricted consumer options and
distorted the natural competitive dynamics of the market. Such behavior undermines the
principles of fair competition and transparency, and ultimately harms consumers by
limiting their access to a broader range of products. The fact that these rebate practices led
to legal actions and antitrust penalties further underscores their unethical nature, as they
violated competition laws designed to protect the integrity of the market.

5. In your view, did Intel violate either of the two key sections of the Sherman Antitrust
Act? Explain.
ANSWER:

In my view, Intel did violate both key sections of the Sherman Antitrust Act.

Section 1 of the Sherman Antitrust Act prohibits contracts, combinations, or conspiracies

that unreasonably restrain trade. Intel’s rebate agreements with computer manufacturers
effectively restricted them from purchasing or using AMD’s processors, thereby limiting
AMD’s market access. By financially incentivizing these manufacturers to remain
exclusively with Intel or to favor Intel heavily, Intel entered into arrangements that
restrained trade and competition, which is precisely what Section 1 aims to prevent.
Section 2 of the Sherman Antitrust Act addresses monopolistic practices, prohibiting
attempts to monopolize or maintain monopoly power through anti-competitive means. Intel
was already a dominant player in the CPU market, and by using its financial leverage to
suppress AMD’s growth, it aimed to maintain this dominance unfairly. Intel’s use of
exclusivity rebates was not simply to promote its own product but to eliminate AMD as a
competitor, which aligns with anti-competitive behavior that Section 2 is designed to
curtail. Through these tactics, Intel not only exploited its market power but also aimed to
reinforce it, violating the essence of fair competition that the Sherman Act is intended to
uphold.