Description
Intel made large loyalty payments to HP in exchange for HP buying most of their chips from Intel instead of rival AMD.
AMD sued Intel under the antitrust 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 did they ignore it?
Explanation & Answer
Attached.
Running head: INTEL LOYALTY PAYMENTS
Intel Loyalty Payments
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Institution
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INTEL LOYALTY PAYMENTS
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Intel Loyalty Payments
Intel and its business and technological rival Advanced Micro Devices (A.M.D) have
been stuck in a bitter legal war for a long time. The legal war came to an end when a court
recently ordered Intel to pay A.M.D 1.25 billion dollars because Intel breached antitrust laws
(Kanter, 2009). The case is unique and will, therefore, be a benchmark case on the issue of
loyalty payments among firms. Based on the available information, Intel wanted to have the
upper hand by giving its clients incentives to buy their products. Nevertheless, the company
ignored important antitrust laws and ended up paying their rival.
Intel wanted to control the exclusion incentive conflict when it paid HP the high amounts
of money as loyalty payments. In the case, HP is a valuable industry player in the field of
technology. Therefore, the company is a major buyer of processing chips. HP is therefore a huge
potential market for any firm that manufactures important computer components such as
processors and other parts. Therefore, HP wanted to ensure that HP bought processing chips
from them rather than other firms that make the chips. V, on the other hand, manufactures
processing chips that are compatible with Intel devices (Crane, 2016). Therefore, the company
presented a very strong competitor to HP. Paying clients huge amounts of money as loyalty
payments were meant to ensure that Intel maintained its market leadership and prevented the
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