Government regulations and antitrust law

AP Wire. (8 Mar 2005) "Anti - Monopoly Agency Rules Against Intel. The New York Times. Business News. Retrieved 8 Mar 2005 at http://www.nytimes.com/aponline/business/AP-Japan-Intel.html

One of the central concerns regarding government regulation of businesses and the establishment of monopolies is to protect the consumer by creating an open sphere of market competition. But what of a marketplace where a non-sanctioned monopoly has ensued where the consumer is not being unduly harmed? The economic theory of supply and demand holds that when supplies are kept artificially low, prices are kept artificially high. Traditionally, the defense against prohibiting monopolies are that "in a market that has only one or few suppliers of a good or service, the producer(s) can control price, meaning that a consumer does not have choice, cannot maximize his or her total utility, and has have very little influence over price." (Investopedia, 2005) But even when a firm does not directly abuse its status as a monopoly, should it still be allowed to continue its practices?

Japan's anti-monopoly Federal Trade Commission recently released a report that said Intel, the world's largest computer chip maker, broke Japanese antitrust laws by trying to elbow out rival microprocessor-makers through extending discounts and marketing payments given to personal computer makers in exchange for exclusive or near exclusive use of Intel products. But Intel Company spokesman Chuck Mulloy in California said no evidence existed that Intel's discounts led to higher prices or a lower supply that could lead to higher prices for consumers. (AP Wire, 2005)

In other countries, antitrust regulators typically look beyond competitors, he said. "The Japanese FTC appears to be focusing only on harm to competitors as opposed the consensus view in the antitrust community that you should look at what happened to the market or, more importantly, to consumers," said Mulloy. "That analysis and that consideration are absent from this recommendation," and from most Japanese anti-trust law recommendations in general (AP Press Wire, 2005)

Market Outcome

Thus, while anti-trust law in America focuses on harm to American consumers, Japan's FTC anti-trust philosophy is geared to creating an overall better business environment for businesses as well as simply for consumers. Intel is purportedly engaging in actions to keep CPUs (central processing units) made by competing companies from being used and substantially limiting the CPU sales sector for Japanese personal computer makers. Thus, Intel is stifling the development of potential but much smaller rivals such as microprocessors made by rivals including Advanced Micro Devices Inc. And Transmeta Corp.'(AP Press Wire, 2005) If the case was found to be valid, Intel could lose its dominance in the Japanese chip market, a huge blow to the company.

Political impact on economic behavior

Although Intel is a California-based company, clearly this current controversy shows that antitrust legislation is a global, not purely a national issue. A Japanese FTC case against Microsoft accused the company of unfair licensing arrangements with Japanese manufacturers and was held up in government hearings. According to the AP Wire, "if Intel rejects the FTC's recommendations to drop its practices, the agency could launch legal proceedings against it. It was not immediately clear what potential consequences the company could face if the matter goes to court.

Social diversity

Japan's FTC might have a social agenda -- to increase the dominance of home-based Japanese chipmakers that are currently minute in comparison to Intel. However, some of Japan's largest companies have dominated the scandal, such as Hitachi, as they have willingly done business with Intel, and agreed to its arrangements of exclusivity, much to their apparent business and market advantage, even though this may cause some social detriment to the nation, overall, in terms of Japanese companies making inroads into the chip market. Intel's share of the CPU market in Japan rose to 90% in 2004, from 78% in 2002 and in contrast, the Japanese Advanced Micro Devices' share fell to 8%, from 18%, over the same period. (AP Wire, 2005)

Technological innovation

Intel has long had a primary mover advantage in the chip sector, and enjoys global dominance in this sphere. However, Japan represents a substantial component part of Intel's market, and even despite the fact that Japan's antitrust policy is not universal, a ruling against the company could have a profound impact upon the company, despite its cornering of chip technical innovation.