* What incentive conflict was being controlled by these loyalty payments?
It is fundamental to note that an incentive conflict emerges where one Company A feels they have no obligation to do something that Company B feels they should do (Kirkwood, 2015). The incentive conflict in this case is exclusion. This occurred where Intel offered loyalty payments to HP so that they could purchase more chips from them and exclude AMD. In the scenario presented, Intel ended up making a bad decision. This is due to the fact that Intel`s action made it more costly for AMD to participate in the chip market since one of its most reliable clients had excluded them leading intel`s action to be viewed as illegal. Moreover, this is a violation of antitrust laws while alluding to the United States. The federal trade commission prohibits unfair methods of competition such as the one Intel resulted to (“Price Discrimination,” n.d.). Moreover, the loyalty payments were also in violation of the Clayton Act which was amended under the Robinson-Patman Act of 1936 barring discriminatory (exclusionary) dealings between merchants.
* What advice did Intel ignore when they adopted this practice?
Intel failed to consider the idea that in the event a Company has a competitive advantage over another, it is expected to consider the effect which its premeditated action is capable of having on its competitor (Kirkwood, 2015). According to the Robinson-Patman Act, for a violation to occur there must be likely injury to competition. One can discern that this violation occurred in Intel`s case since the Company`s action managed to impose harm on AMD. While referring to Froeb`s Analytic method, the intuitive action for Intel in this situation would be to identify the problem to solve; which in this case involves exclusion. The method then recommends speedy action to come up with a solution, and finally implementing the resolution ( In Geest, 2009 ). The $1.25 billion paid to AMD is, therefore, justifiable.
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* Why did they ignore it?
Intel ignored the advice since the Company was aware that AMD produces chips which are superior to theirs. Since Intel felt vulnerable, the Company decided that it was best to result to unfair practices which would exclude AMD from benefitting. Intel is well aware that it violated the Robinson-Patman Act which is why the entity chose to settle so that they could end their woes. Prior to this occurrence, Intel and AMD had been locked in other competition wars and hence Intel felt its action of excluding AMD was sufficiently justified.
Conclusion
It is evident that Intel made a bad decision by choosing to offer HP loyalty payments in return for them not purchasing more chips from them than AMD. This is significantly the case since it violates the Robinson-Patman Act. By utilizing the Froeb`s Analytic method, it is apparent that Intel took the required action of resolving the dispute since they may have been required to make a greater compensation by the court. Future disputes between both entities can be avoided if they adhere to the specifications made in the Robinson-Patman Act.
References
Federal Trade Commission. (n.d.). Price Discrimination: Robinson-Patman Violations. Retrieved from https://www.ftc.gov/tips-advice/competition-guidance/guide-antitrust-laws/price-discrimination-robinson-patman
In Geest, G. (2009). Encyclopedia of law and economics .
Kirkwood, J. B. (2015). Reforming the Robinson-Patman Act to Serve Consumers and Control Powerful Buyers. The Antitrust Bulletin , 60 (4), 358-383.
