Intel’s rebates are apparently given rise to a potentially whole new class of suits based on the notion recipients of the rebates at the center of the Commission’s antitrust action should have been disclosed. The WSJ reports:
Dell said last week that it and Mr. Dell were in talks with the Securities and Exchange Commission to settle civil allegations that they violated securities laws in connection with Dell’s dealings with Intel, a longtime supplier of microprocessor chips. At issue, people familiar with the situation say, is whether Dell should have disclosed rebates it received from Intel to investors. …
The settlements also won’t affect Mr. Dell’s position as the company’s chairman and chief executive, the company said. But they may come with sizable monetary penalties—the company has set a $100 million reserve for its own potential liability. The settlements could also shed new light on what effect Intel’s subsidies had on Dell’s finances over the years.
The story mentions that competitively-sensitive information like prices and rebates are typically treated confidentially. And for good reason. Intel’s rebates are competitive activity. Competition for distribution from Intel and AMD to secure business from OEMs like Dell are a normal part of the competitive process, and like other forms of competition, generate benefits for consumers. Requiring disclosure of competitively-sensitive information to the public, and competitors, runs the same risks that one would presume present if one substituted the word “rebates” with “prices.”
The disclosure issue here brings to mind another example of a potentially misguided disclosure regime that was the subject of one of my first blog posts back from when TOTM was hanging out at Ideoblog. Back in 2005, California was considering a bill that would require retailers to disclose shelf space payments (aka “slotting fees“) to rival manufacturers. Senator Figeuroa introduced Senate Bill No. 582, which would have mandated that:
A retailer shall, upon the request of a qualified supplier or manufacturer, disclose the placement fees or arrangements that the retailer assesses other suppliers or manufacturers for placement of similar products.”
Violations would allow competing manufacturers to recover a $10,000 civil penalty and attorney’s fees from a retailer who fails to comply. Luckily for California consumers, SB 582 went away. SB 582 was embarassingly misguided policy, and obviously bad for California consumers, who are the ultimate beneficiary of payments to retailers for valuable shelf space. Taking action to facilitate an agreement to collude on slotting fees would be obviously unwise policy with little or no offsetting benefits.
Disclosure regulation regimes are frequently given a pass when it comes to cost-benefit analysis. Legal scholars and economists are often guilty presuming without analysis that disclosure presumptively satisfies the “do no harm” principle. (Geoff Manne’s Hydraulic Theory paper offering a systematic analysis of the costs of disclosure in the securities context is a must read.) While economists generally appear to agree with the notion that more information is better than less in many settings, and many disclosure proposals are offer some potential net benefits, policy proposals like SB 582 (and potentially required disclosure of rebates for OEMs) are grounded in a failure to understand the competitive process and specifically, the role of competitive payments for distribution in that process. If the economics of these payments are not understood, an SEC settlement which requires Dell and recipients of these rebates to disclose them to rivals and the public may impose significant costs on consumers. Regulators charged with protecting the public interest ought to be mindful of the competitive implications of these payments when thinking about disclosures.