Competition in the Microprocessor Market: Intel, Amd and Beyond

Pages: 42 (11967 words) Published: June 19, 2013
Competition in the Microprocessor Market:
Intel, AMD and Beyond
André Semmler

October 17th, 2010
Abstract
This paper analyzes the competition in the microprocessor market be-tween Intel and AMD. The evolution of market structure is traced and it is shown that the main ways in which these two companies compete is through Price, Technological Innovation and Vertical Integration. Empir-ical Research is conducted showing consumer preference across two coun-tries. A model is sketched in which Intel acts as the incumbent and AMD the fringe rm. We also undertake an empirical investigation through a novel empirical technique. Yet new technological development erodes the market position of these two rms.

1 Introduction
This paper will analyze the form and type of competition between rms in a segment of the information-technology market. Its main focus will be on the personal computer microprocessor market and the competition between two companies, Intel and AMD. In this case, Intel is considered as the incumbent, and AMD the fringe. For our imperical study we use the paradigm of struc-ture, conduct and performance 1

 which has frequently been used in Industrial
Organization Studies. We will particularly focus on the evolution of the mar-ket structure, conduct of the rms in the industry and performance and other competition related topics will be discussed.

As concerning the microprocessor industry, it is well known that Intel and AMD are the two world market leaders in the production of microprocessors. Intel has a market share of 81.7%, while AMD has a market share of 16.9%. Intel is the larger and historically older of the two companies. A duopoly is dened as a market in which the greatest part of the market share is held by 2 companies but in our case there are companies with uneven market shares. The microprocessor market can be dened as a oligopoly with an incumbent and a fringe rm, since there are no other large microprocessor producers, and about 

University of Trier, Germany (asemmler@gmail.com)
1
see Scherer
1
98.6% of the total market share is held by the 2 companies. Although, as I will discuss below, the two rms use many means of competition, the main way being technological innovation. The large rm attempts to buildup competition-deterring capital to block the smaller rms. A more precise model for such a situation is sketched in the appendix.

The remainder of the paper is organized as follows: Section 2 presents the evolution of the market structure. Section 3 summarizes the characteristics of the market structure and evaluates it briey. In Section 4 the research method is presented. Section 5 shows results of an empirical data survey on the compe-tition between the two companies and analyzes this data. Section 6 concludes the paper. The appendix sketches a dynamic model between the dominant and the fringe rm.

2 Evolution of Market Structure
Companies in the microprocessor industry have always been competed by at-tempting to invent products which of higher quality (faster) than competitors products. In order to understand this type of competition in the eld of tech-nological progress, one needs to be acquainted with Moore's Law. 2.1 Technology Change - Moore's Law

Cofounder of Intel Gordon E. Moore stated in 1965 that transistor density on circuits would double every 2 years , i.e. that the speed of processors would double nearly every 2 years while the size of its transistors would continually decrease and the number increase

2
. This has been happening since 1971, mainly
due to the heavy competition between AMD and Intel. The following table demonstrates Moore's Law.
2
Source: (http://www.intel.com/research/silicon/mooreslaw.htm 2
Figure 1: Moore's Law. Source: www.intel.com, own computation) However, while the number of transistors double every two years, concur-rently the cost of one transistor falls nearly exponentially over time, leading to cheaper yet faster...

References: [1] Brock, W. A. (1983) "Pricing, Predation, and Entry Barriers in
Reguladted Industries" in Evans, D
[2] Kato M. and W. Semmler, (2010), Dominant Firms, Barriers to
Entry Capital and Antitrust Policy , forthcoming Festschrift for
[5] Varian, Hal R., (1996), Intermediate Microeconomics A modern
approach , New York, W.W
[6] Weiss, L. W. (1963) "Average Concentration Ration and Industrial
Performance" The Journal of Industrial Economics, Vol
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