Million Euro Questions Everyday

In the end all that seemed to matter was the size of the fine. When it was announced on May 13 it turned out to be the largest ever of its type: euro 1.06 billion ($1.44 billion). This is what Intel, the world’s biggest chipmaker, will have to pay if the European Commission prevails in its view that the firm, which sells about 80% of the microprocessors for PCs, has abused its dominance.
Yet the case against Intel is not chiefly about money that might one day “sponsor the European taxpayer”, in the words of Neelie Kroes, Europe’s competition commissioner (the fine will sit in a blocked bank account until the case is decided). The main question is: under what conditions can a quasi-monopoly such as Intel give discounts and rebates to computer-makers and retailers?
The commission does not think that such practices are illegal per se. But it claims that Intel’s discounts and rebates were often conditional on the exclusion of its rival, AMD. The commission says that in one case Intel paid Media-Saturn Holding, Germany’s largest electronics retailer, to sell only computers with Intel chips inside, and in another case a computer-maker had to agree to buy at least 95% of the chips in its business PCs from Intel to qualify for rebates.
Computer-makers have to play along, the commission argues, because they depend on Intel for a majority of their chips—a result of the fact that AMD’s production capacity is limited. If a firm decided to buy as many AMD chips as possible, it could end up worse off since it might then have to pay more for the chips purchased from Intel. To overcome this handicap, AMD would have to price its processors below cost, and perhaps even pay its customers. In one case, according to the commission, AMD offered a computer-maker 1m free chips, but it ended up taking only 160,000 of them.
Intel says the claims against it are false. It does not deny making extensive use of discounts and rebates, but insists that it has never required customers to agree not to buy from AMD in order to obtain a discount, and has never raised prices when customers bought from AMD. What is more, says Bruce Sewell, Intel’s general counsel, no harm seems to have been done: AMD is alive, chip prices are falling and innovation is rampant.