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?
Week 11 Discussion
If You Knew Then What You Know Now
If you’ve read and understood this book, you should know how to:
- Use the rational-actor paradigm, identify problems, and then fix them.
- Use benefit-cost analysis to evaluate decisions.
- Use marginal analysis to make extent (how much) decisions.
- Make profitable investment and shut-down decisions.
- Set optimal prices and price discriminate.
- Predict industry-level changes using demand and supply analysis.
- Understand the long-run forces that erode profitability.
- Develop long-run strategies to increase firm value.
- Predict how your own actions will influence other people’s actions.
- Bargain effectively.
- Make decisions in uncertain environments.
- Solve the problems caused by moral hazard and adverse selection.
- Motivate employees to work in the firm’s best interests.
- Motivate divisions to work in the best interests of the parent company.
- Manage vertical relationships with upstream suppliers or downstream customers.
Take a few minutes and share which of these concepts and skills you feel are going to be of greatest influence on your future.
Which of these concepts would have been really helpful to know in the past? What would it have changed?
Answer preview
Considering benefit-cost analysis will have established the justification for all the business actions made. By using the idea as the basis for comparing various operations, unnecessary costs will be avoided. Making the profitable investment and shut down decisions would be a flexible business decision-making model. The economic conditions in the market remain uncertain and while a venture is profitable at the present market changes requiring withdrawal and changing with better alternatives would be a profitable move. Another useful concept is the setting of an optimal price and discriminating prices to enjoy a wide variety of market experiences most beneficial to the business. Another concept to be considered in the future decisions is bargaining effectively. The success of the company in the future full of competition and availability of alternative deals require a high level of ability to negotiate effectively. The most significant concept to use in future decisions is the motivation
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