<p>Assuming that they have identical monodimensional products.</p>
<p>One explanation could be that they were competing on quantity rather than price ala Cournot model.</p>

CC BY-SA 4.0
2024-08-07T13:53:36.920Z
Why do you start with a demonstrably false assumption?
Giskard
CC BY-SA 4.0
2024-08-07T21:45:35.393Z
Because I'm using a pragmatist philosophy of science approach according to which models are not used because they are true or false but because they have explanatory value. Sometimes it is legitimate to abstract from unnecessary complexities in order to focus on the thing you want to explain. An example would be many natural monopolies that produce multidimensional products but for whom a lot of economic features can be described in more simple models that abstract away from this complexity. Simplicity and explanatory power are virtues of scientific knowledge.
Jesper Hybel
CC BY-SA 4.0
2024-08-07T22:07:38.113Z
Also, I simply think there is some merit in showing that even if you accept the false premise the perplexing "conclusion"  need not follow.
Jesper Hybel
CC BY-SA 4.0
2024-08-07T11:26:09.287Z
2024-08-07T11:26:09.287Z
Jesper Hybel
<p>We have mostly resolved this in the comments: <br>
The question relied on the false premise that Intel and AMD have a nearly identical product and are in price competition.</p>
<p>The real situation is much more complicated, since both companies offer a variety of products, some of which are similar, some less so. They also do not (merely) compete on unit price, they make much more complicated sales deals with wholesalers where price is predicated on quantity bought and other conditions, so the Bertrand model is a poor fit, and we should not expect its conclusions to hold.</p>

CC BY-SA 4.0
2024-08-07T18:49:18.287Z
*"We have mostly resolved this in the comments"* No, you posted a list of Intel CPUs, and, for some extremely strange reason, decided that it was proof that AMD does not have similar alternatives.
MWB
CC BY-SA 4.0
2024-08-06T08:44:34.450Z
2024-08-07T05:22:07.370Z
2024-08-07T05:22:07.370Z
Giskard
<p>There are several reasons why these two firms can compete with each other without bankrupting one another.</p>
<h2>1. Your assumptions may be wrong.</h2>
<h3>1.1. There are different ways firms compete.</h3>
<p>Price competition is not the only way firms can compete. In the industrial organization literature, there are two basic forms of competition: price (Bertrand) and quantity (Cournot) competition. A mix of these two styles is also possible, and firms can switch between the two modes of competition.<span class="math-container">$^1$</span></p>
<p>In recent years many scholars started to also use term non-price competition because firms can also compete along numerous dimensions (e.g. market share, reputation and other).<span class="math-container">$^2$</span></p>
<p>In these richer models of competition it is not true that firms always price such that Price =Marginal Costs.</p>
<h3>1.2. The products are not necessarily homogeneous.</h3>
<p>One of your premises is that the products are homogeneous because they have the same technical parameters, but that is a mistaken premise. What matters is whether customers perceive these products as homogeneous or heterogeneous, not whether they physically are.</p>
<p>This often gets lost in translation because, outside specific sub-fields like industrial organization, textbook models tend to assume homogeneity or heterogeneity without elaboration. However, it is well known that firms can use marketing to make their products &quot;stand out&quot; and be perceived differently. For instance, in a Hotelling duopoly, firms can increase perceived differentiation and relax competition through advertising.</p>
<h2>2. You are applying static model to evolving situation.</h2>
<p>You are applying an insight from the static Bertrand model. That result assumes that the firms are engaged in a one-off, non-repeating strategic interaction. While this can be a good first approximation for an equilibrium that eventually arises:</p>
<p>We are clearly observing the situation from the vantage point of someone in the middle of it. How do you know that, in 20 or 30 years, AMD or Intel won't dominate most of the market?</p>
<p>Data from <a href="https://www.statista.com/statistics/735904/worldwide-x86-intel-amd-market-share/" rel="nofollow noreferrer">Statista</a> show that until just very recently Intel actually had near monopoly over the whole market with almost 80% market share. Things changed recently, but this might be just a perturbation on a road to stable equilibrium with 1 firm.</p>
<p><a href="https://i.sstatic.net/3GbThDel.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/3GbThDel.png" alt="Data from Statista on AMD vs Intel share" /></a></p>
<p>Furthermore, once we move beyond static Bertrand, in dynamic Bertrand models, firms can recover the fixed costs of R&amp;D investment. In fact, peer-reviewed research<span class="math-container">$^3$</span> shows that even in the presence of fixed costs, more than one or even two firms can exist simultaneously and earn enough profit to cover these fixed costs.</p>
<h3>3. There could be some collusion.</h3>
<p>It is always in principle possible that these firms collude and earn extra ordinary profit due to collusion.</p>
<p>However, this is difficult to judge without any rigorous research. Moreover, this thread contains misinformation/disinformation about how firms collude or US competition policy.</p>
<p>3.A. US policy actually allows monopoly if it can be shown to be good for customer. See the <a href="https://www.ftc.gov/advice-guidance/competition-guidance/guide-antitrust-laws/single-firm-conduct/monopolization-defined" rel="nofollow noreferrer">Federal Trade Commission</a> own website that states this clearly;</p>
<blockquote>
<p>Obtaining a monopoly by superior products, innovation, or business acumen is legal;</p>
</blockquote>
<p>3.B. Moreover, government does not just acts against monopoly. FTC clearly states it can act also against duopolies. The number of firms actually is not directly part of FTC decision, and duopolies are already routinely investigated.</p>
<p>Consequently, it is misinformation/disinformation to claim that US government does not allow monopoly but allows duopolies. This is not how US anti trust policy works and it never worked this way in the past.</p>
<p>3.C. Institutional investors generally do not invest their own money (look at <a href="https://www.oecd-ilibrary.org/docserver/5k3v1dvmfk42-en.pdf?expires=1723747301&amp;id=id&amp;accname=guest&amp;checksum=68D2449DDDFE5B489438F4078D37DF2E" rel="nofollow noreferrer">OECD</a> explainer about institutional investors). As a result institutional investors do not directly reap benefits of two firms colluding.</p>
<p>Moreover, FTC actually tracks firm ownership so companies simply cannot cheat anti trust law by some third entity owning all the companies on the market.</p>
<p>As a result it is simply impossible to avoid anti trust in this way.</p>
<p>The two firms could tacitly collude through strategic interactions, for example, by using a grim trigger strategy<span class="math-container">$^4$</span>. In this scenario, one firm keeps prices high and &quot;plays nice&quot; until the other firm deviates.</p>
<p>There are other ways to tacitly collude, but it is not possible to do so simply through ownership by institutional investors. The FTC can review board meeting minutes, subpoena witnesses, and more (<a href="https://www.ftc.gov/about-ftc/mission/enforcement-authority" rel="nofollow noreferrer">FTC</a>). As a result, when collusion remains undiscovered, it is typically tacit collusion. Any overt attempt to collude would be easily uncovered.</p>
<p>However, there is little evidence that AMD and Intel are colluding. The <a href="https://www.ftc.gov/news-events/news/press-releases/2010/08/ftc-settles-charges-anticompetitive-conduct-against-intel" rel="nofollow noreferrer">FTC</a> actually prosecuted Intel for anti-competitive practices, but not AMD. In fact, its ruling was beneficial to AMD. This case demonstrates that Intel, not AMD, was engaging in anti-competitive behavior in the past, perhaps explaining its previously high market share. As part of the settlement, Intel had to implement policies that benefited AMD and other firms. Moreover, <a href="https://www.nbcnews.com/id/wbna25006003" rel="nofollow noreferrer">NBC</a> reported that AMD filed a complaint against Intel, which contradicts the claim that these two firms cooperate. Why would AMD urge the FTC to act against Intel if they were colluding? This borders on conspiracy theory. The simpler explanation is that Intel had a superior market position, and AMD, as the underdog, was suppressed because Intel pursued anti-competitive practices that made it harder for customers to switch (see details of the case linked before).</p>
<p>This case also shows that the FTC does not focus solely on the number of firms in the market. They use various metrics to measure competition, which can differ on a case-by-case basis.</p>
<hr />
<p><strong>References:</strong></p>
<ol>
<li><p>Klemperer, P., &amp; Meyer, M. (1986). Price competition vs. quantity competition: the role of uncertainty. The RAND Journal of Economics, 618-638.</p>
</li>
<li><p>Symeonidis, G. (2000). Price Competition, Non‐Price Competition and Market Structure: Theory and Evidence from the UK. Economica, 67(267), 437-456.</p>
</li>
<li><p>Saporiti, A., &amp; Coloma, G. (2010). Bertrand competition in markets with fixed costs. The BE Journal of Theoretical Economics, 10(1), 0000102202193517041634.</p>
</li>
<li><p>Tadelis. Game Theory: An Introduction. 197-198.</p>
</li>
</ol>

CC BY-SA 4.0
2024-08-18T21:59:39.237Z
*"(Cournot) competition"* -- Cournot competition applies when the prices are fixed for some reason (by legislation, collusion, etc). How would this apply in Intel and AMD's case?
MWB
CC BY-SA 4.0
2024-08-18T22:13:23.137Z
*"in 20 or 30 years"* -- Why do we need such time scales? By lowering its prices today, AMD could increase its volume and profits within years or months. But then Intel would lower its prices, and so on. AMD and Intel have been sharing the market for decades, and this scenario hasn't happened. It's valid to ask why.
MWB
CC BY-SA 4.0
2024-08-19T10:39:25.140Z
@MWB no Cournot competition does not mean prices are fixed. In Cournot competition prices are as flexible as in Bertrand competition. I do not know where you got the idea that Cournot competition requires fixed prices but that is simply not true.
WilliamT
CC BY-SA 4.0
2024-08-19T10:42:44.397Z
@MWB If you use static model you are essentially using a model where time period lasts the whole game. So if you want to apply static Bertrand you need to assume you are analyzing the situation from perspective of the whole game of these two firms competing. Consequently, your time frame should be x many years where x is the number of years you think these firms compete together. Otherwise you should use dynamic model.
WilliamT
CC BY-SA 4.0
2024-08-15T19:02:33.273Z
2024-08-15T22:43:48.413Z
2024-08-15T22:43:48.413Z
WilliamT
<p>Their R&amp;D costs a lot of money (fixed cost). And Intel's and AMD's main products are largely interchangeable (no moat)(<em>1</em>). One could expect that they'd compete on price, until their prices are close to their marginal costs, making their losses roughly equal to their fixed costs (R&amp;D and whatnot). But that doesn't happen, somehow. I wish someone could explain to me why.</p>
<hr />
<p><em>(1)</em>. They run the same <a href="https://en.wikipedia.org/wiki/X86-64#Differences_between_AMD64_and_Intel_64" rel="nofollow noreferrer">machine code</a>. And their offerings cover <a href="https://www.cpubenchmark.net/high_end_cpus.html" rel="nofollow noreferrer">the same price and performance ranges</a>, leaving no gaps. So a computer manufacturer could pick whichever is cheaper for its target performance.</p>
<p>To be more precise, each CPU family needs its own motherboard type. So it's the combinations of CPU+motherboard that are interchangeable between Intel and AMD. But whether you want a cheap CPU or a high-end server, Intel and AMD are competing for your dollars, and will run the same software.</p>

CC BY-SA 4.0
2024-08-02T08:49:31.767Z
"*Intel's and AMD's main products are largely interchangeable (no moat)*" - citation needed
Giskard
CC BY-SA 4.0
2024-08-02T08:52:15.623Z
"*One could expect that they'd compete on price*" Large scale deals to resellers are rarely based on uniform pricing, see e.g.;  [the EU Intel case](https://curia.europa.eu/jcms/upload/docs/application/pdf/2022-01/cp220016en.pdf).
Giskard
CC BY-SA 4.0
2024-08-02T08:53:44.850Z
The perfect competition model from microeconomics or the undifferentiated Bertrand competition model from industrial organization have very little to do with most markets where the goods are not almost homogeneous, sadly the insights they offer are frequently wrong.
Giskard
CC BY-SA 4.0
2024-08-02T16:06:41.910Z
@Giskard https://en.wikipedia.org/wiki/X86-64#Differences_between_AMD64_and_Intel_64
MWB
CC BY-SA 4.0
2024-08-02T21:24:05.453Z
I'm sorry, where are the products? This is about instruction sets. If this is all that matters then [all these 64 bit processors](https://en.wikipedia.org/wiki/List_of_Intel_processors) should be the same and cost the same. Yet it seems there are plenty of differences.
Giskard
CC BY-SA 4.0
2024-08-07T16:42:44.703Z
@Giskard AMD has its own list, and they cover the same price and performance ranges.
MWB
CC BY-SA 4.0
2024-08-07T19:37:25.207Z
Bertrand competition with (possibly asymmetric) fixed costs has substantively different equilibrium predictions than Bertrand with constant MC and no fixed cost. Since fixed cost is not negligible in your example, you should apply models (e.g. [Marquez (1997)](https://www.sciencedirect.com/science/article/abs/pii/S0165176597818848)) that explicitly incorporate this aspect of reality.
Herr K.
CC BY-SA 4.0
2024-08-09T14:38:13.853Z
Whenever I upgrade my computer I have to decide AMD vs Intel. From my POV the product is (CPU + Motherboard), where the motherboard is primarily defined by the chipset, which in turn is closely linked to the CPU. If you expand the question to (CPU + Chipset) then the supposed moat disappears. As a buyer, there is very little to choose between them.
Paul Johnson
<microeconomics><duopoly>
How come Intel and AMD do not bankrupt each other?
MWB
# How come Intel and AMD do not bankrupt each other?

(Asked by: username_0 on 2024-08-02)

Their R&D costs a lot of money (fixed cost). And Intel's and AMD's main products are largely interchangeable (no moat)(*1*). One could expect that they'd compete on price, until their prices are close to their marginal costs, making their losses roughly equal to their fixed costs (R&D and whatnot). But that doesn't happen, somehow. I wish someone could explain to me why.

---

*(1)*. They run the same [machine code](https://en.wikipedia.org/wiki/X86-64#Differences_between_AMD64_and_Intel_64). And their offerings cover [the same price and performance ranges](https://www.cpubenchmark.net/high_end_cpus.html), leaving no gaps. So a computer manufacturer could pick whichever is cheaper for its target performance.

To be more precise, each CPU family needs its own motherboard type. So it's the combinations of CPU+motherboard that are interchangeable between Intel and AMD. But whether you want a cheap CPU or a high-end server, Intel and AMD are competing for your dollars, and will run the same software.

**Tags:** microeconomics, duopoly
> **Comments:**
> **username_1**: "*Intel's and AMD's main products are largely interchangeable (no moat)*" - citation needed  
> **username_1**: "*One could expect that they'd compete on price*" Large scale deals to resellers are rarely based on uniform pricing, see e.g.;  [the EU Intel case](https://curia.europa.eu/jcms/upload/docs/application/pdf/2022-01/cp220016en.pdf).  
> **username_1**: The perfect competition model from microeconomics or the undifferentiated Bertrand competition model from industrial organization have very little to do with most markets where the goods are not almost homogeneous, sadly the insights they offer are frequently wrong.  
> **username_0**: @Giskard https://en.wikipedia.org/wiki/X86-64#Differences_between_AMD64_and_Intel_64  
> **username_1**: I'm sorry, where are the products? This is about instruction sets. If this is all that matters then [all these 64 bit processors](https://en.wikipedia.org/wiki/List_of_Intel_processors) should be the same and cost the same. Yet it seems there are plenty of differences.  
> **username_0**: @Giskard AMD has its own list, and they cover the same price and performance ranges.  
> **username_2**: Bertrand competition with (possibly asymmetric) fixed costs has substantively different equilibrium predictions than Bertrand with constant MC and no fixed cost. Since fixed cost is not negligible in your example, you should apply models (e.g. [Marquez (1997)](https://www.sciencedirect.com/science/article/abs/pii/S0165176597818848)) that explicitly incorporate this aspect of reality.  
> **username_3**: Whenever I upgrade my computer I have to decide AMD vs Intel. From my POV the product is (CPU + Motherboard), where the motherboard is primarily defined by the chipset, which in turn is closely linked to the CPU. If you expand the question to (CPU + Chipset) then the supposed moat disappears. As a buyer, there is very little to choose between them.  

---

## 3 answers

### Answer by username_5 on 2024-08-15. Score: 5 | Accepted answer

There are several reasons why these two firms can compete with each other without bankrupting one another.

## 1. Your assumptions may be wrong.

### 1.1. There are different ways firms compete.

Price competition is not the only way firms can compete. In the industrial organization literature, there are two basic forms of competition: price (Bertrand) and quantity (Cournot) competition. A mix of these two styles is also possible, and firms can switch between the two modes of competition.$^1$

In recent years many scholars started to also use term non-price competition because firms can also compete along numerous dimensions (e.g. market share, reputation and other).$^2$

In these richer models of competition it is not true that firms always price such that Price =Marginal Costs.

### 1.2. The products are not necessarily homogeneous.

One of your premises is that the products are homogeneous because they have the same technical parameters, but that is a mistaken premise. What matters is whether customers perceive these products as homogeneous or heterogeneous, not whether they physically are.

This often gets lost in translation because, outside specific sub-fields like industrial organization, textbook models tend to assume homogeneity or heterogeneity without elaboration. However, it is well known that firms can use marketing to make their products "stand out" and be perceived differently. For instance, in a Hotelling duopoly, firms can increase perceived differentiation and relax competition through advertising.

## 2. You are applying static model to evolving situation.

You are applying an insight from the static Bertrand model. That result assumes that the firms are engaged in a one-off, non-repeating strategic interaction. While this can be a good first approximation for an equilibrium that eventually arises:

We are clearly observing the situation from the vantage point of someone in the middle of it. How do you know that, in 20 or 30 years, AMD or Intel won't dominate most of the market?

Data from [Statista](https://www.statista.com/statistics/735904/worldwide-x86-intel-amd-market-share/) show that until just very recently Intel actually had near monopoly over the whole market with almost 80% market share. Things changed recently, but this might be just a perturbation on a road to stable equilibrium with 1 firm.

[![Data from Statista on AMD vs Intel share](https://i.sstatic.net/3GbThDel.png)](https://i.sstatic.net/3GbThDel.png)

Furthermore, once we move beyond static Bertrand, in dynamic Bertrand models, firms can recover the fixed costs of R&D investment. In fact, peer-reviewed research$^3$ shows that even in the presence of fixed costs, more than one or even two firms can exist simultaneously and earn enough profit to cover these fixed costs.

### 3. There could be some collusion.

It is always in principle possible that these firms collude and earn extra ordinary profit due to collusion.

However, this is difficult to judge without any rigorous research. Moreover, this thread contains misinformation/disinformation about how firms collude or US competition policy.

3.A. US policy actually allows monopoly if it can be shown to be good for customer. See the [Federal Trade Commission](https://www.ftc.gov/advice-guidance/competition-guidance/guide-antitrust-laws/single-firm-conduct/monopolization-defined) own website that states this clearly;

> Obtaining a monopoly by superior products, innovation, or business acumen is legal;

3.B. Moreover, government does not just acts against monopoly. FTC clearly states it can act also against duopolies. The number of firms actually is not directly part of FTC decision, and duopolies are already routinely investigated.

Consequently, it is misinformation/disinformation to claim that US government does not allow monopoly but allows duopolies. This is not how US anti trust policy works and it never worked this way in the past.

3.C. Institutional investors generally do not invest their own money (look at [OECD](https://www.oecd-ilibrary.org/docserver/5k3v1dvmfk42-en.pdf?expires=1723747301&id=id&accname=guest&checksum=68D2449DDDFE5B489438F4078D37DF2E) explainer about institutional investors). As a result institutional investors do not directly reap benefits of two firms colluding.

Moreover, FTC actually tracks firm ownership so companies simply cannot cheat anti trust law by some third entity owning all the companies on the market.

As a result it is simply impossible to avoid anti trust in this way.

The two firms could tacitly collude through strategic interactions, for example, by using a grim trigger strategy$^4$. In this scenario, one firm keeps prices high and "plays nice" until the other firm deviates.

There are other ways to tacitly collude, but it is not possible to do so simply through ownership by institutional investors. The FTC can review board meeting minutes, subpoena witnesses, and more ([FTC](https://www.ftc.gov/about-ftc/mission/enforcement-authority)). As a result, when collusion remains undiscovered, it is typically tacit collusion. Any overt attempt to collude would be easily uncovered.

However, there is little evidence that AMD and Intel are colluding. The [FTC](https://www.ftc.gov/news-events/news/press-releases/2010/08/ftc-settles-charges-anticompetitive-conduct-against-intel) actually prosecuted Intel for anti-competitive practices, but not AMD. In fact, its ruling was beneficial to AMD. This case demonstrates that Intel, not AMD, was engaging in anti-competitive behavior in the past, perhaps explaining its previously high market share. As part of the settlement, Intel had to implement policies that benefited AMD and other firms. Moreover, [NBC](https://www.nbcnews.com/id/wbna25006003) reported that AMD filed a complaint against Intel, which contradicts the claim that these two firms cooperate. Why would AMD urge the FTC to act against Intel if they were colluding? This borders on conspiracy theory. The simpler explanation is that Intel had a superior market position, and AMD, as the underdog, was suppressed because Intel pursued anti-competitive practices that made it harder for customers to switch (see details of the case linked before).

This case also shows that the FTC does not focus solely on the number of firms in the market. They use various metrics to measure competition, which can differ on a case-by-case basis.

---

**References:**

1. Klemperer, P., & Meyer, M. (1986). Price competition vs. quantity competition: the role of uncertainty. The RAND Journal of Economics, 618-638.
2. Symeonidis, G. (2000). Price Competition, Non‐Price Competition and Market Structure: Theory and Evidence from the UK. Economica, 67(267), 437-456.
3. Saporiti, A., & Coloma, G. (2010). Bertrand competition in markets with fixed costs. The BE Journal of Theoretical Economics, 10(1), 0000102202193517041634.
4. Tadelis. Game Theory: An Introduction. 197-198.

> **Comments:**
> **username_0**: *"(Cournot) competition"* -- Cournot competition applies when the prices are fixed for some reason (by legislation, collusion, etc). How would this apply in Intel and AMD's case?  
> **username_0**: *"in 20 or 30 years"* -- Why do we need such time scales? By lowering its prices today, AMD could increase its volume and profits within years or months. But then Intel would lower its prices, and so on. AMD and Intel have been sharing the market for decades, and this scenario hasn't happened. It's valid to ask why.  
> **username_5**: @MWB no Cournot competition does not mean prices are fixed. In Cournot competition prices are as flexible as in Bertrand competition. I do not know where you got the idea that Cournot competition requires fixed prices but that is simply not true.  
> **username_5**: @MWB If you use static model you are essentially using a model where time period lasts the whole game. So if you want to apply static Bertrand you need to assume you are analyzing the situation from perspective of the whole game of these two firms competing. Consequently, your time frame should be x many years where x is the number of years you think these firms compete together. Otherwise you should use dynamic model.  

---

### Answer by username_4 on 2024-08-07. Score: 7

Assuming that they have identical monodimensional products.

One explanation could be that they were competing on quantity rather than price ala Cournot model.

> **Comments:**
> **username_1**: Why do you start with a demonstrably false assumption?  
> **username_4**: Because I'm using a pragmatist philosophy of science approach according to which models are not used because they are true or false but because they have explanatory value. Sometimes it is legitimate to abstract from unnecessary complexities in order to focus on the thing you want to explain. An example would be many natural monopolies that produce multidimensional products but for whom a lot of economic features can be described in more simple models that abstract away from this complexity. Simplicity and explanatory power are virtues of scientific knowledge.  
> **username_4**: Also, I simply think there is some merit in showing that even if you accept the false premise the perplexing "conclusion"  need not follow.  

---

### Answer by username_1 on 2024-08-06. Score: 5

We have mostly resolved this in the comments:   
The question relied on the false premise that Intel and AMD have a nearly identical product and are in price competition.

The real situation is much more complicated, since both companies offer a variety of products, some of which are similar, some less so. They also do not (merely) compete on unit price, they make much more complicated sales deals with wholesalers where price is predicated on quantity bought and other conditions, so the Bertrand model is a poor fit, and we should not expect its conclusions to hold.

> **Comments:**
> **username_0**: *"We have mostly resolved this in the comments"* No, you posted a list of Intel CPUs, and, for some extremely strange reason, decided that it was proof that AMD does not have similar alternatives.  

---

