Competition in the Microprocessor Market: Intel, Amd and Beyond

11958 Words Jun 10th, 2013 48 Pages
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
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Source: see www.intel.com
3
The two Figures combined show how rapidly the processors have been devel-oping and technologically advancing, and how the oligopolistic competition has not only beneted the companies, but also consumers. The rapid decrease of transistor prices has helped keep the production cost for processors low, while the number of transistors on each processor increased alongside performance.
2.2 The Historical Evolution of Market Structure
Today the processor market can be dened as a duopoly. However, in its begin-ning, a large number of dierent competitors were still competing for segments of it. Looking at the evolution of the market structure is inevitable in learning how competition evolved, since many prior competitors were already eliminated by competition.
We will study the evolution of the market structure by looking at sequence of events leading up to today 's market. While Intel was founded in 1967, AMD was founded only shortly after in 1968. In 1976 AMD and Intel sign a cross-license agreement which eventually leads to the elimination of other competitors due to a widening technological gap. In 1987 the cross-licensing agreement between
AMD and Intel is terminated. This marks the beginning of strong competition between the two companies. Computer prices are driven below $1,000 in 1997 through heavy competition and advances in technology. Another competitor,
Cyrix, exits the market at this time. In 1998

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