Managerial Economics and Globalization

Managerial Economics and Globalization

Week 10 Discussion

Loyalty Payments

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?

Answer preview

Week 10 Discussion: Loyalty Payments; the Case of Intel, HP, and AMD

  • Incentive Conflict controlled by the Loyalty Payments

The incentives conflicts controlled by the loyalty payments between HP and Intel were exclusion. Intel and AMD are competitors, and Intel gave the loyalty payments to exclude AMD from the chips business. By providing loyalty payments to HP, the company would exclusively consider purchasing the chips from Intel. It is considered an illegal act because it makes it hard for rivals to enter the market competitively. This is an unlawful practice in the Us that violate the antitrust laws (Galbraith, 2017). Advanced Micro Devices is a smaller rival to Intel making the…

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Managerial Economics and Globalization

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