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April 01, 2014
John Simpson Co-Authors Paper on the Theories of Harm in the Intel Investigations

John Simpson, a principal in The Brattle Group’s antitrust practice, recently co-authored an article that uses publicly available information drawn from the various court cases and investigations involving Intel Corporation (“Intel”) to illustrate the types of evidence needed to prove harm from the use of volume and market share discounts.

Over the past decade, several private plaintiffs and competition agencies sued Intel based in part on the claim that Intel offered original equipment manufacturers market share or volume discounts in order to foreclose competition in CPU markets. The authors consider two possible theories of how such discounts could harm competition. The first theory notes that buyers who compete intensely will often place little value on lower market-wide input costs because the benefits of those lower input costs would be competed away. Consequently, in such an environment, an incumbent monopolist can get buyers to sign exclusive contracts that would prevent new entry and preserve high prices by offering buyers a small side payment, which could take the form of a loyalty discount. The second theory assumes that some of the incumbent’s sales are contestable while some of the incumbent’s sales are not contestable. In this theory, loyalty discounts could be predatory if the amount of the discount, when applied to the contestable sales, means that the effective price of the contestable sales is below cost. The authors note that the best theory for analyzing Intel’s behavior likely varies based on the market and time period being examined.

The article, “Loyalty discounts and theories of harm in the Intel investigations,” was co-authored by Dr. Simpson and Patrick DeGraba of the FTC. It was published in the Journal of Antitrust Enforcement and is available for download here.