Problem 236 Loyalty Payments Intel made large loyalty paymen

Problem 23-6 Loyalty Payments: Intel made large loyalty payments to Hewlett Packard (HP) in exchange for HP buying mot of their chips form Intel instead of rival AMD. AMD sued Intel under the anti-trust laws, and Intel settled the case by paying $1.25 billion to AMD. What incentive conflict was being controlled by these loyalty payments? What advice did Intel ignore when they adopted this practice? Why?

Solution

Anti-trust law ensures better regulation of predatory policy to hold fair competition. In this case of loyalty settlement, Intel tries to stand on own feet and enjoy monopoly power. Intel actually tries to prevent AMD to enter the market and capture a fixed share of Hewlett Packard.

MRTP acts are always worse than Competition acts. But intel ignore this while adopting this policy.