Is Intel's Marketing Campaign Predatory?

Abstract

Antitrust authorities typically try to establish exclusivity and the anticompetitiveness of loyalty rebates through pricing, but do not address the strategic use of advertising and, more generally, marketing campaigns. In this paper we focus on non-price anticompetitive behavior arising from marketing. Specifically, we examine whether Intel's choice of processor marketing via PC firms is consistent with predatory behavior. There is suggestive evidence that Intel used it's "Intel Inside" marketing campaign for predatory purposes. First, PC firms were given funds to use in advertising their Intel-based computers. Second, under the "Intel Inside" program firms were generously reimbursed for marketing expenditures. However, the funds and rebates were given if PC firms restricted sales of Intel's main rival's chips, where rebates amounted to $1.5 billion in 2001. We propose a Test of Advertising Predation (TAP) that can be used to detect non-price predatory behavior. The TAP test is based on a structural approach and allows us to disentangle the potential positive impact of the marketing program from the anticompetitive predatory effect. We apply the TAP test to the Intel case, but it can be used to guide antitrust authorities in future cases, as it provides a more general framework for testing for the anticompetitive use of marketing campaigns. Our test results suggest that Intel sacrificed short-term profit via its marketing campaign suggesting Intel's marketing campaign was predatory. by Hwa Ryung Lee, Andras Pechy and Michelle Sovinsky