Loyalty Payments and Supply Chain Rules

Loyalty Payments and Supply Chain Rules

Loyalty Payments-Supply Chain Rules

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?
Be sure to cite all source used.

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Solution Preview

            This settlement was a solution to the long court wars between Intel and AMD. The rivalry was on the basis of antitrust and breaking of patent laws. This law suit will enable AMD gain some ground as Intel owns about 80% of the market shares. Although Intel claims they had no intentions to kick AMD out of the market, AMD claims that Intel favored the corporations that used their microchips and caused a hard time for industries that used AMD microchips. (Steve 2009)The loyalty payments also came with a promise that Intel would not try to monopolize the sector and quarterly meetings would be held to solve issues.

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