Target: Intel, and Competition

Target: Intel, and Competition. WSJ Editorial
Team Obama adopts the European model on antitrust.
WSJ, May 14, 2009

The world is returning to the 1970s on most economic policies, so why not antitrust too? Judging by events this week, antitrust enforcement in the U.S. and Europe is in for a major comeback, whether or not consumers benefit.

Yesterday in Brussels, the European Commission imposed a record antitrust fine of $1.45 billion on Intel for the heinous crime of discounting computer chips in its fierce and long-running competition with AMD. Meanwhile on Monday, President Obama's new antitrust chief, Christine Varney, issued a radical revision of the Department of Justice's own antitrust enforcement standards. Ms. Varney's ambition seems to be nothing less than bringing Europe's corporatist approach to competition policy to the U.S. To succeed, she will have to flout or overturn decades of Supreme Court precedent on the limits of U.S. antitrust law.

But Ms. Varney can be sure of a friendly ear in Brussels, which has never let go of the idea that competition is best when there isn't much of it. The Commission's attitude is on full display in the fining of Intel for allegedly abusing its dominant position in the market for computer processors. For years, Intel and AMD have been essentially the only game in town for computer CPUs. The Commission's complaint amounts to little more than a whinge that Intel won more of this business than the Commission would prefer.

This is couched in dark-sounding talk about Intel paying computer makers not to buy AMD chips. But remember there is only so much demand and there are only two major market players. So any order won by Intel by offering a discount or a rebate is, by definition, an order lost by AMD. And yet the Commission bizarrely claims that "millions of Europeans" have been harmed by this price war.

Intel has been able to sell enough chips cheaply enough to maintain an overall market share that has hovered between 75% and 80% for years. And those lower prices help drive down the price of a computer, which is good for consumers. A less competitive market for chips, or one in which Intel is barred from offering discounts to its biggest customers, would mean higher consumer prices. The Commission also suggests that Intel may have sold some chips below its cost, but Intel denies this and claims it can prove it if the Commission would deign to consider its evidence.

The Commission is, as ever, more focused on preserving competitor welfare above consumer welfare, and Ms. Varney at Justice seems to be promoting a similar approach. The American left likes to advertise itself as pro-consumer. But the curious reality about the left's view of antitrust in both Europe and America is that it is often used to assist big business by dampening competition. This corporatist notion seems to be that companies should compete, so long as no one really loses. Ms. Varney paid lip service to the dangers of protecting competitors when she criticized the National Industrial Recovery Act, ushered in by FDR during the Great Depression. That odious piece of industrial policy blessed price collusion between big firms in exchange for a commitment to keep people employed and share some of the collusive profits with labor.

But in her speech, Ms. Varney tries to cast this anticompetitive act as a form of deregulation. In fact, the NIRA was regulation of the worst sort, protecting competitors from competitive harm in the name of some greater good. True deregulation aims at greater competition, while European (and Rooseveltian) corporatism dampens it. This historical obfuscation allows Ms. Varney to argue that it would be good for competition to adopt something like Europe's "abuse of dominant position" standard in place of the consumer-harm test that currently prevails in the U.S.

Europe's Intel case makes the importance of these different tests very clear. By any reasonable application of a consumer-harm test, the antitrust claim that Intel is driving down prices -- and so making computers less expensive -- would be laughed out of U.S. court. The only harm here is to a competitor that can't match Intel's prices. And even at that, AMD isn't exactly going out of business. At times its market share for consumer desktop CPUs has been as high as 50%, and at its most successful the upper bound has been determined as much by AMD's own manufacturing capacity as by Intel's behavior.

When she announced the judgment against Intel Wednesday, European Competition Commissioner Neelie Kroes praised Ms. Varney's new approach to antitrust. And no wonder. Regulators love company, and European regulators in particular love it when their American counterparts help them hamstring the most efficient U.S. companies. Why President Obama should want to punish U.S. multinationals is harder to figure since his political success hangs on economic recovery and a revival in business profits and hiring. But perhaps we should conclude that this is merely one more example of the ways in which this Administration is seeking to remake American capitalism in the image of Continental Europe.