Having some significant market power may have an effect on the competitors of any planned action ( Crane, 2016). In having this power, you should consider the effects that this power may have on the competitors ( Crane, 2016). This planned action may be able to hurt your competitors adversely, and if it does so, it is sure that the harm caused may result to particular moves which in turn may need a sound business justification, (to some extent even get extra credit). As for this case, Intel had most of their chips bought by HP instead of Advanced Micro Devices (AMD) whom they had been rivals, and in this, AMD sued Intel for that; loyalty payments by Intel could be justified, but even if it was so, the loyalty payments to AMD reduced the demand for their chips, driving them up their average cost curve, hence slowing down their competition. The aim for loyalty payment was to ensure Intel chips are used by HP exclusively Intel became a major threat to other computer companies who engaged in AMD.
The conflict on the incentive that existed between HP and Intel is an exclusion. As a result, AMD who were competitors to HP, experienced the exclusion since Intel was giving large loyalties to HP, NEC, Lenovo and Dell purposefully to exclude AMD and all the other competitors. Intel made it more costly for the rivals to enter and perform in the chip market ( Friend, 2018). In the United States, such type of vertical contract is termed as illegal and hence in violation of antitrust laws ( Geradin, 2015).
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Intel failed to follow the advice that; in possession of significant market power, you should put into consideration the effect that any planned action may impose to competitors as stated in the Robinson-Patman Act. Moreover, plans to pay loyalties to HP by Intel affected the decisions made by HP on bidding the chip job set for the competition since they were also well established in the computer market. This is illegal since they should not prevent other companies from offering an alternative in the market.
References
Crane, D. A. (2016). Formalism and Functionalism in the Antitrust Treatment of Loyalty Rebates: a Comparative Perspective. Antitrust Law Journal , 81 (1), 209.
Friend, M. (2018). Loyalty Rebates and Abuse Of Dominance. The Cambridge Law Journal , 77 (1), 25-28.
Geradin, D. (2015). Loyalty Rebates after Intel: Time for the European Court of Justice to Overrule Hoffman-La Roche. Journal of Competition Law & Economics , 11 (3), 579-615.
