Intel punished for being too competitive

European authorities recently stormed Intel’s offices in a surprise early morning raid. The “raids should come as good news to consumers across Europe,” exclaimed Thomas McCoy, a spokesperson for rival microchip-maker Advanced Micro Devices.

What crime did the world’s dominant computer chip manufacturer commit to warrant such heavy-handed tactics?

According to the European Commission, Intel’s behavior is “anti-competitive.” In other words, its prices are too good to be true. Cheap microchips might be great for consumers. But apparently they’re not so good for competitors like AMD, which is terrified that another company is offering superior products at lower prices.

For more than six years, antitrust officials have investigated AMD’s complaints that competitive pricing threatens struggling competitors.

In the American system, winners and losers are the hallmarks of a thriving market. But in Europe, competition is often discouraged by the government.

In fact, European antitrust regulators strive to ensure that no competitor becomes too powerful – even if it means propping up faltering firms that produce inferior products.

Ironically, the European Commission’s latest assault on Intel follows just one week after the company unveiled the fastest microchip ever created, more than doubling the computing power of its predecessors. Rather than innovate to match Intel’s achievement, AMD is now manipulating the European Commission – the EU’s executive branch – to foist slower computers on the consumer.

Rewarding failure
Not surprisingly, AMD has received more than $1 billion in direct government subsidies in the past five years. Such government protection from failure ensures that companies remain beholden to the government, not consumers.

The current charges against Intel have already been proved baseless. After an exhaustive three-year probe of Intel’s business practices, the European Commission (EC) concluded in 2002 that no evidence existed to substantiate AMD’s allegations of unfair pricing.

But regulators suddenly reconsidered their decision and began investigating Intel anew six months later – after AMD announced plans to locate a $2.4 billion factory in Germany.

Why are bureaucrats in Brussels so eager to bully America’s technology titans? Much like their counterparts across the Atlantic, European politicians are often driven by two powerful motivators: money and power. If the government successfully prosecutes Intel for violating competition law, it could reap nearly $700 million in fines, more than 10 percent of the EC’s annual budget. After collecting a similar windfall from Microsoft in September, Europe’s competition cops have become increasingly bold in extorting the American technology sector. If innovators fail to satisfy European demands, they could be barred from competing in an increasingly global digital economy.

Grabbing power
With this power, the EC is rapidly becoming the world’s gatekeeper for new technologies. In recent months, regulators forced Apple to accept price controls on its popular iTunes music store and launched three new attempts to dictate which features Microsoft can offer in its software products. In early April, commissioners released guidelines dictating how Internet companies like Google and Yahoo should collect, use, and profit from information online.

The EC’s willingness to manipulate the technology industry makes Europe the venue of choice for companies looking to cripple their competitors and gain an unfair advantage in the marketplace. By repeatedly coaxing regulators to investigate Intel, AMD hopes to level the playing field and compensate for its own mistakes.

Plagued by a poor business strategy and technical errors, AMD recently stumbled in bringing its latest products to market. The company also overpaid by more than $1.6 billion to acquire fellow chip-maker ATI. These missteps forced the company’s CEO to admit in December that “we blew it, and we’re very humbled by it.” Despite this candor with shareholders, executives cry foul to regulators in Europe, blaming AMD’s woes on Intel.

In taking this bait, the EC creates a perverse system of incentives where winners get fined and losers subsidized. As a result, bureaucrats win and consumers lose.

The European obsession with protecting competition at all costs is both shortsighted and ineffective. Companies succeed not merely by competing, but by outcompeting. Customers will benefit from better choices and lower prices if regulators step back and let the chip-makers compete to compute.

Daniel Ballon, Ph.D., is a fellow in technology studies at the Pacific Research Institute in San Francisco.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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