by Barry A. Liebling
In August 2006 Fortune reported on a nasty battle that is being waged between the second-largest microprocessor company Advanced Micro Devices (AMD) and Intel the giant of the industry. The conflict is nasty because it goes beyond the bounds of private business competition into the world of government intervention. AMD filed an Antitrust Complaint against Intel in U.S. Federal District Court (See www.amd.com for its press releases on the subject.) and is demanding “that Intel cease its illegal activities and that a level competitive playing field be restored.” AMD is also seeking “an award for damages …for lost profits and economic harm.”
The case is likely to go to trial in 2008, and – like many antitrust cases – it is not obvious how the legal battle will be resolved. The government may or may not rule justly. And the issues relating to justice are what makes this case interesting.
According to AMD, Intel has maintained its lead “through threats, coercion and intimidation of its own customers.” Specifically, it is alleged that Intel offers computer manufacturers discounts and rebates that are dependent on the proportion of machines they make with Intel chips. For example, no discount at all if fewer than 20 percent of the machines have Intel inside, a moderate discount if 50 percent of the machines are Intel-based, and a high discount if 80 percent of the manufacturer’s products are powered by Intel. This incentivizes computer manufacturers to buy from Intel and discourages them from increasing their AMD purchases.
Let’s step back and review what the proper role of government is in regulating business practices. In a free market the mission of government is limited to the protection of individual rights – which means the government should prohibit the use of fraud and force in the business arena. Most reasonable people easily recognize what “fraud” refers to – deliberately communicating falsehoods about a product or service.
However, to many people it is not so obvious what counts as force. A person is initiating force if he physically violates – or threatens to violate – someone’s person or property. This includes murder, assault, theft, imprisonment, trespassing, and vandalism. Force always involves an active move on the part of the perpetrator. By contrast, persuading and bargaining – such as offering attractive incentives or threatening not to trade – does not constitute the use of force. You may admire or condemn someone’s attempts to persuade, but you should not confuse persuasion with physical coercion.
Returning to the antitrust case, assume that Intel is in fact bargaining very effectively with its potential customers – making it highly attractive to purchase its chips and enticing buyers to increase Intel purchases. It is understandable that AMD executives see this as a problem that requires countermeasures. However, the fact that Intel is offering sweet deals on its chips in no way violates anyone’s rights – even if people at AMD feel jealous and frustrated.
While the outcome of the legal proceedings remains to be seen, there is no justice in condemning Intel for shrewd business practices. The proper response for disappointed AMD executives is to manage their business better. As examples, they can develop and market superior chips (they have already improved their business by this route), they can optimize their manufacturing efficiencies, they can develop an attractive discount program of their own in response to Intel’s.
Take note that scrutinizing Intel’s business practices is only half of the story. The principle that forbids the initiation of force in business is universal. Even as it is wrong for Intel to use physical coercion with its customers or with AMD, it is likewise intolerable for AMD to initiate force in its business dealings.
Of course it would be villainous if AMD executives were to threaten to close down Intel’s business or to steal money from Intel. Furthermore, it is obvious that it would be just as bad if AMD people were to employ a surrogate to molest Intel. The gangster who hires thugs to do his dirty work cannot claim that his hands are clean.
What is not so obvious is that it is equally contemptible to use the government as a surrogate for initiating force. It may be technically legal to file an antitrust suit as a strategy for improving a business, but the tactic is craven. AMD cannot justifiably use the government as a cudgel to compete against Intel.
While the battle between AMD and Intel is nasty, it does not have to remain so. It is within the power of top executives to recognize, publicly assert, and adhere to ethical business practices. That would be the best resolution to the conflict.
*** See other entries at AlertMindPublishing.com in “Monthly Columns.” ***