05 November 2009

Intel and Dell

I found this article, which describes the background behind Andrew Cuomo's (NY Attorney General) suit against Intel, interesting. Intel apparently made payments to Dell in exchange for their continued (exclusive) use of Intel processors in their machines. These payments were substantial:
In 2006, Dell received $1.9 billion. During two quarters that year, Intel payments even exceeded Dell earnings. In the quarter that ended in April, payments were $805 million, compared with $776 million in net income. For the quarter that ended in July 2006, Intel's payment amounted to 116% of net income.
I find this article interesting because it illustrates the "sponsorship" a "standard". Economists who have studied standards (Farrell, Saloner, Katz, Shapiro, David and others) have cited sponsorship as a rational strategy for firms wishing to establish (or defend) a de facto standard. In its interactions with Dell, Intel seems to view its processors as a standard platform for PCs (as opposed to Intel). Thus, this reveals the costs of (and limits to) sponsorship.

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