NYT’s Freudian Slip

Thom Lambert —  29 October 2007

I just wandered down to the local Panera Bread for lunch and picked up someone’s discarded copy of today’s New York Times. One of today’s editorials, F.T.C. Goes AWOL, claims that the Federal Trade Commission “clearly shares the ‘starve the regulators and coddle industry’ philosophy that has driven the Bush administration for seven years.” The evidence? The FTC’s refusal to open a formal investigation into Intel’s loyalty discounts, which are offered to computer makers that minimize the use of processors made by Intel’s rivals.

In the discarded print edition I found at Panera, the editorial complains that “The United States Fair Trade Commission is still holding back from opening a formal inquiry into the company’s practices.” Of course, the United States doesn’t have a “Fair” Trade Commission. Instead, we have a “Federal” Trade Commission. A Fair Trade Commission might well focus its efforts on protecting small competitors, thus restricting aggressive competition by big companies so that little companies can stay in the game. Our Federal Trade Commission, by contrast, keeps its eye on consumers. Given that the complained of behavior here — discounting — offers an immediate benefit to consumers, our Federal Trade Commission is reluctant to intervene. That’s how it should be.

The New York Times worries that big bad Intel could use its discounts to “lock[] out smaller rivals that may have better products with new features or lower prices” — in other words, that Intel’s discounts could foreclose sales opportunities for more efficient rivals. But, assuming the discounts result in prices that exceed Intel’s costs, they could not do so. Any rival that’s as efficient as Intel could match the company’s non-predatory (i.e., above-cost) discounts. Thus, the only reason to stop Intel from lowering its prices in exchange for loyalty would be to protect less efficient rivals who, because of their higher prices and/or inferior quality, could not match Intel’s price cuts. A Fair Trade Commission might take that tack. A consumer-focused Federal Trade Commission would not.

(Note: When I checked the New York Times’ online edition a few minutes ago, the text had been corrected to read “Federal” Trade Commission.)

Thom Lambert

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I am a law professor at the University of Missouri Law School. I teach antitrust law, business organizations, and contracts. My scholarship focuses on regulatory theory, with a particular emphasis on antitrust.

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