Issues and Ethics in International Business

BIB 3074

School of Management & Business

Case Study 2: Intel’s “Rebates” and Other Ways It “Helped” Customers

Prepared for:

Mrs. Lailatul Zuraidah

Prepared by:

Darshini A/P Govindasamy

(1207182007)

Bachelor of Business Administration (Hons)

(International Business)
1. In your judgement is Intel a “monopoly”? Did Intel use monopoly-like power;
in other words, did Intel achieve its objectives by relying on power that it had
due to its control of a large portion of the market? Explain your answers.

In my judgement, I would say Intel is an absolute monopoly and can be considered as a

monopoly firm. A monopoly is when one firm holds a strong position in an industry or
sector to the extent of excluding all other potential competitors. It typically has a single
seller, a single product with no competitors, the firm sets the price, and entry and
departure are restricted. In this case study, there are several reasons depicts Intel use
its monopoly power completely and unfairly to keep the computer companies from
purchasing AMD’s microprocessors besides controlling the entire market.

First and foremost, Intel achieves its objective by creating and patenting a new
microprocessor called “Itanium”, that did not use x86 technology. This was legally
barred AMD from producing it since Intel alone hold the patent for the new non-x86
processor. In addition, Intel also paid the Japanese companies like Sony, Toshiba and
NEC in terms of offering millions of dollars in “rebates”. Intel’s was solely intended those
companies to use only Intel microprocessors inside their computers and stop
purchasing AMD’s microprocessors; those companies that accepted rebates pledged to
stop purchasing AMD products. In this situation, Intel use the opportunity to completely
exercise its monopoly power when AMD developed a more advanced new processor
called “Athlon” that has various benefits compared to Intel’s Ithanium. For instance,
AMD’s Athlon were able to run x86 programs extremely fast and smooth as well as it
used less electricity than Intel’s Ithanium.
Furthermore, Intel had changed the programs sold by software companies so that their
programs would not work well on computers using AMD’s computer chips. For example,
Intel changed its compilers so that programs compiled with Intel’s compilers would run
fine on Intel processors, but would run slowly on AMD’s. Also, Intel changed the
software codes its library so they would not work well on AMD processors. As a result of
this, AMD received blames from consumers and reviewers when new programs as well
as a program containing Intel’s codes did not run well. Last but not the least, Intel
negotiated a deal with Dell to purchase microprocessors from Intel and stop buying from
AMD. In this case, Intel paid computer makers like Dell to boycott AMD’s processors by
giving them significant rebates although many of its customers wants the intended
computers with AMD’s processors. However, Intel punished Dell when it eventually
realized that boycotting AMD’s processors was hurting Dell’s revenues and continued to
lose market share.
2. In your judgement, were Intel’s rebates ethical or unethical? Explain your
answer.

In my point of view, Intel’s rebates were unethical and the rebate were never rebates.
This is because Intel crossed the line into completely an unethical behaviour by forcing
and paying firms like Sony, Toshiba, Dell and NEC, not to use its competitors’
microprocessors and chips. The rebates that were offered and paid are more like a
bribe to ensure that AMD never had a remarkable chance to gain profit by their sales.
They forced the firms to purchase their chipsets without their choice. Therefore, it is not
an option to use such force.

Another reason why Intel’s rebates was unethical because those immoral behaviour has
led to a complicated situation where AMD’s sales hit a wall in 2003 and 2004. The
computer manufacturers refused to purchase AMD’s processors all of sudden. In this
case, Intel handed over those rebates when a firm agreed to stop buying from AMD,
regardless of the number of processors they subsequently purchased. In fact, Intel also
behaved unethically by threatening computer companies by warning them that if they
did not stop using AMD’s microprocessors, Intel might stop supplying them with any
microprocessors at all.
3. Was it unethical for Intel to use its compilers and its libraries of software code
in the way it did, or is this permissible for companies in a free market
economy? Explain your answer.

Yes, it was unethical for Intel to use its compilers and its libraries of software code in the
way it did. This is due to the fact that, Intel's libraries and compilers restrict files from
working on ADM computers. Intel changed its compilers so that programs compiled with
Intel’s compilers would run fine on Intel processors, but would run slowly on AMD’s.
Moreover, when software companies used Intel’s compilers to process one of their
programs, Intel’s compiler secretly inserted bugs into the program that slowed it when it
ran on an AMD processor, but not on an Intel processor. This is executed by Intel
without AMD’s knowledge.

In addition, the software companies that Intel provided with libraries software code were
designed to trip up programs when they ran on AMD microchips. In this case, the
software engineers inserted short bits of code into their programs instead of writing
them out each time they need them. Intel provided software engineers with libraries
consisting of dozens of these bits of code. However, Intel changed the software codes
in its library so they would not work well on AMD processors. As a result of the dirty play
executed by Intel, customers and reviewers blamed AMD’s processor when their new
programs did not run well on a computer that had an AMD chip inside. Once AMD's
brand had been ruined, it would have been nearly hard for the firm to recover and
rebuild customers' trust. Sabotaging was unethical and indeed would not be acceptable
in a free market economy.
4. Were Intel’s rebates unethical? Explain why or why not.

Intel's refunds were unethical because they were not based on the sale of the product.
Instead, they were more like a bribe, particularly, Intel's rebates were part of an attempt
to keep AMD out of the multiprocessor industry. It reduces consumer’s choice because
AMD developed a new processor called the Athlon and it has multiple benefits that
could be gained by consumers; however, consumers were not be able to use it due to
Intel’s immoral act on using its monopoly power intensely to threatened and prevent
them to use AMD’s microprocessors and used only Intel microprocessors inside their
computers.

Apart from that, it was so huge that they accounted for a major portion of some
companies' annual income, such as Dell. Dell was well aware that its increasing
earnings were unethical, so it exaggerated, claiming that the profits were due to efficient
and effective management. Intel's rebate could be regarded as a loyal discount in
exchange for AMD's product being boycotted. Moreover, the rebates grew dramatically
over time and could not be explained to shareholders, demonstrating that all individuals
involved were aware that the refunds were unethical.
5. In your view, did Intel violate either of the two key sections of the Sherman
Antitrust Act? Explain.

In my opinion, I would undoubtedly say that Intel violated the Sherman Antitrust Act.
This is due to the use of anti - competitive behaviour and monopolization that is illegal.
This is because Intel's acts had a substantial negative impact on the business of its
competitors. The respective firms are obligated to follow the Act's standards in order to
determine the most suitable level for all businesses. The Act's requirements ensure that
prices are kept as low as possible while yet ensuring product quality. Furthermore, the
Act protects competition for the advantage of customers, and competition is beneficial
because it encourages companies to be more innovative and efficient, all to the benefit
of consumers. Every contract is declared to be illegal under Section 1 of the Sherman
Antitrust Act, which declares that every contract is a combination in the form of trust or
conspiracy in restraint trade involving several states or foreign nations. Section 2 of the
Sherman Antitrust Act bars monopolization or attempts to monopolize any component of
international trade. Hence, it is evident that Intel violate the Sherman Antitrust Act by
using its monopoly power intensely and illegally execute activities, particularly,
threatening and forcing other companies like Dell, Sony and Toshiba not to use AMD’s
microprocessers.