7 ms·

The alternative is they could charge more. They could. And people would pay it.

vannevar 1mo ago
The problem isn't the price. No matter how much you pay, you can't take delivery of a chip that doesn't exist. Now, you could raise prices to the point where you destroy demand. But that's a tricky window to maneuver through.
- boredatoms 1mo ago
  For consumers they’re already destroying demand
- fn-mote 1mo ago
  > The problem isn't the price. No matter how much you pay, you can't take delivery of a chip that doesn't exist I’m confused because this reads like a denial of basic economics. If the price is high enough, the chip will be produced for you. Do you mean because of the production lead time, higher prices won’t result in increased production? Commodities like corn have been managing this for a long time… what’s special about chips? What is your actual argument?
  - JoeAltmaier 1mo ago
    It takes a billion dollars and years to produce a new chip fab line. So no, it cannot just be produced for you on a dime.
    - XorNot 1mo ago
      Also supply contracts exist which is what started all this: OpenAI signed huge orders for most of the market all at once. No one had any chance to properly include that information in their pricing or bidding.
  - juiceland 1mo ago
    [flagged]
  - DannyBee 1mo ago
    Corn is heavily subsidized,also has (in the US) federally prvided insurance programs against plunging prices, has paid uselessness(ethanol). Despite all of this corn has caused massive agriculture bankruptcy/takeover when it has failed anyway. So it's more "what's special about corn". It is also fairly hilarious to claim the parent is denying basic economics and then bring up corn as an example of having successfully managed economics. If the scales were not being thumbed, and "basic economics" were in play, corn would be in very very bad shape. In the case of DRAM, there is an incredibly long history of these gloom/glut cycles, and they have stayed roughly the same timeframes (~3 years) since the 1990's. Almost all the ones who have survived this long are either in the same kind of boat as corn - protected in various forms from the downside - or don't increase production and get caught out until they are absoultely forced. The very temporarily increased profit is not worth going bankrupt for - they make more money long term by being very cautious and know this. There are a near infinite number of economic studies you could look at (and several sibling comments cite some) - DRAM manufactuers don't chase the price and probably couldn't anymore if they want to. None of this denies basic economic theory, of course, since economic theory is not exactly "rigorous", even to the degree it could be (IE even the parts that are pure analysis of data rarely reproduce!).
    - SR2Z 1mo ago
      I don't think that anything you said is wrong but I also don't think that memory consumption is going back to the old baseline... well, ever. Memory is just too useful now that you can use it to drive cars and write code.
      - nemothekid 1mo ago
        The problem is that is speculation and the market barriers are currently too high for losing business to be a threat. The two outcomes are (1) you overbuild, you end being wrong, you go bankrupt and lose everything or (2) you are right, but since you didn't overbuild, you lost out on some revenue, but demand still exists 3 years later and you didn't lose everything. In any other business choosing (2) would mean someone else swoops in and steals all your business. It doesn't look like this is at all possible for memory fabs.
  - p1necone 1mo ago
    The capital investment needed to bring new chip fabs online and to staff them is likely orders of magnitude higher than that needed to buy land to grow corn on. And then the ratio of investment to sell price on that land + infrastructure is probably significantly worse for chip fabs that potentially aren't needed to satisfy demand anymore a few years from now. "If the price is high enough" is of course technically true, but the scale of what high means in this context is important.
  - crote 1mo ago
    Nontrivial markets don't behave like Economics 101 textbook examples. Samsung, SK Hynix, and Micron have a combined market share of 90% - with most of the rest being a very new-to-the-market CXMT. It is a cutthroat market which behaves like a stereotypical "pork cycle". Semiconductor fabs cost billions to build and take years to complete, so you better be damn sure you have buyers before you start constructing one. You and your competition overestimated the demand? You have to pay back the construction cost, so you're now in a race to the bottom and one of you is going bankrupt. Ever wondered where Intel came from? They started out as a DRAM manufacturer, which dominated their revenue well after the introduction of their first microprocessors. But in the early 1980s the glut of supply from new Japanese manufacturers made it so unprofitable that they had to ditch the memory market altogether. The stories of Texas Instruments and Motorola aren't much different. And that's not even mentioning the likes of Mostek, which once held a 85% market share and was dead less than 5 years later! Oh, and those Japanese manufacturers? All gone, pivoted like Intel or died like Mostek. So no, the three remaining DRAM manufacturers aren't going behave like headless chickens and start ordering new fabs just because there's a bubble causing a temporary demand peak. Unless those AI companies are going to pay in advance, in cash, for an entire fab, they'll just have to wait and deal with the price increase.
  - vannevar 1mo ago
    >Commodities like corn have been managing this for a long time… what’s special about chips? Chips aren't grown, for starters. They require very expensive facilities that take a long time to plan, build and start up. And ag firms are not seeing their stock price skyrocket based on the assumption that they will show exponential revenue growth every quarter, so there's no incentive for them to overbook their capacity and hope for the best. Maybe if the population was doubling every six months, you'd see something similar in corn. Prices in the real world are not perfectly elastic, and big deals are often locked in long before actual production.
  - inigyou 1mo ago
    How much would you produce a RAM chip for me for? Not buy - produce. It's a frictionless market in a vacuum right? No barriers to entry. You could make one right now if you wanted.
  - deleted 1mo ago
    [deleted]
  - 1718627440 1mo ago
    > I’m confused because this reads like a denial of basic economics. If the price is high enough, the chip will be produced for you. That's a classic stereotype of what an economic "expert" is going to say, while completely ignoring reality. Just because someone is willing to pay for it, does not mean, that goods just materialize. Sure, a lot of the time someone finds a way, but that is still limited by physical constraints: lack of expertise, lack of needed resources or as in this case simply lack of time.
- HWR_14 1mo ago
  It could be tricky. Or, since supply (in the short term) is pretty well established, they could just auction off chips.
- HumblyTossed 1mo ago
  If you can only make X number of widgets, you must increase the price until demand stabilizes at X.
  - docjay 1mo ago
    Why must you increase the price?
    - LoganDark 1mo ago
      Because if you take orders otherwise you won't be able to fulfill them.
    - somat 1mo ago
      It is the other way around, When people want something they are willing to pay more for it. The manufacturer wants to sell to the person that will pay the most. While the person wants to buy from the manufacturer that charges the least. As such when the manufacturing capacity is below demand the price goes up until the item is worth what people will pay for it(at large, statistically, it works like an auction). The promise of capitalism is that as the price goes up it should incentivize manufacturing capacity to go up and as the capacity meets demand and the manufactures start to fight each other to be the one to sell the item the price goes down. Sometimes this works and sometimes it does not.
      - docjay 1mo ago
        Thank you for taking the time and effort to provide a clear explanation. I’m familiar with supply and demand though. My emphasis was on “must” as a lazy protest against greed being considered a mandatory part of capitalism. Prices don’t have to go up, someone just wants more money. If you happily sell apples for $1 and see a hungry person walking towards you, must you raise the price? I think that basic thought gets lost sometimes when people talk about shortages causing the price to increase. The shortage didn’t cause anything, some executive decided they want more money. That’s all. There’s nothing inherent in the system that requires it. Whether that’s OK or not is up to the reader, I just think people lose sight of the reality and talk about it like it’s gravity, rather than simple decision making.
- daishi55 1mo ago
  I don’t understand how there being essentially unlimited demand for their products that far exceeds supply and is driving up prices accordingly is somehow a bad sign for the industry? > Now, you could raise prices to the point where you destroy demand. You know supply and demand is like a curve right, you can find an optimal equilibrium? It’s not a cliff that you can fall off.
  - Jgrubb 1mo ago
    I guess we'll see about that.
    - daishi55 1mo ago
      Yes, I guess we will find out if high demand for their products is good or bad for an industry.
  - doubletwoyou 1mo ago
    It’s ideally modeled as a curve, but things are never that simple in real life.
  - vannevar 1mo ago
    "Demand destruction" doesn't literally mean all demand is destroyed; it refers to the demand curve you reference. But as a sibling commenter notes, real business is rarely as clean as an econ textbook. In the real world, a supplier can contract to supply more units than they can actually produce. Their customers rely on the representation to make other related deals. And of course, the supplier can book the contracted revenue, causing investors to rely on the forward sales. They can't raise the price at that point, it's fixed in the contract. So if it turns out they physically can't deliver when the time comes, some number of the deals have to be blown up, causing related deals to blow up, etc., etc. That is the risk I was referring to.
    - noduerme 1mo ago
      Or: Supply and demand oscillate in a delayed way based on each other. A quick increase or decrease in one side takes time to ripple, and by the time it does, the organization may have reversed course. An airline overbooks flights. Lots of people get their flights cancelled. Takes six months for the fallout to settle where everyone who got burned booked their future flights on a different airline. 3 months out the airline has to cut the number of flights and cut prices in the face of falling revenue to reclaim market share. As soon as they do that, they're flooded with too many bookings. So they take the bookings and overbook flights again, but it takes time to bring the new flights online. It's not a 1:1 situation. Each time you miss the market you wobble a little further until all the inefficiencies of bad predictions eat you up.
- sidewndr46 1mo ago
  Aren't the advertised prices just a number now? When OpenAI or some other big player comes to buy months worth of production capacity, they aren't doing it at a publicly advertised price.
- thegrim33 1mo ago
  >> Now, you could raise prices to the point where you destroy demand Isn't that topic .. the first chapter of any economics 101 course? Supply and demand and how they influence each other? You think after hundreds of years of economic study we don't have any sort of grasp on these absolute most basic concepts?
  - vannevar 1mo ago
    >You think after hundreds of years of economic study we don't have any sort of grasp on these absolute most basic concepts? Nonetheless, even after all these hundreds of years of economic study, companies still make mistakes (and occasionally, commit fraud). And we still have massive economic crashes. If only everyone understood the "basic concepts", all of this would go away and we would achieve 100% economic efficiency at all times. What a pity.
HumblyTossed 1mo ago
This is what consumers are always told. Prices go up as demand goes up or scarcity increases.
- sandworm101 1mo ago
  But once you get past econ101, you are taught how markets react to percieved bubbles, how those with near monopolies would rather pocket a windfall now than risk investing in future expansions.
  - dismalaf 1mo ago
    Well, look at AI. It sure looks like a bubble, why wouldn't every fab just profiteer now?
    - scrtm 1mo ago
      micron is up to like 85% gross margin this year
      - dismalaf 1mo ago
        Yes, when demand spikes prices rise.
        scrtm 1mo ago
        sure, but spikes are sharp and demand is expected to continue outpacing supply/capacity for the foreseeable future afaict
toss1 1mo ago
Paying more would not help you when there is no more supply. It is a zero sum game. Maybe you could pay someone else who is less desperate to part with some, but that does not increase supply. Nine women cannot produce a baby in a month, even though you could average about one per month if you wait about nine months.

The problem isn't the price. No matter how much you pay, you can't take delivery of a chip that doesn't exist. Now, you could raise prices to the point where you destroy demand. But that's a tricky window to maneuver through.

boredatoms 1mo ago
For consumers they’re already destroying demand
fn-mote 1mo ago
> The problem isn't the price. No matter how much you pay, you can't take delivery of a chip that doesn't exist I’m confused because this reads like a denial of basic economics. If the price is high enough, the chip will be produced for you. Do you mean because of the production lead time, higher prices won’t result in increased production? Commodities like corn have been managing this for a long time… what’s special about chips? What is your actual argument?
- JoeAltmaier 1mo ago
  It takes a billion dollars and years to produce a new chip fab line. So no, it cannot just be produced for you on a dime.
  - XorNot 1mo ago
    Also supply contracts exist which is what started all this: OpenAI signed huge orders for most of the market all at once. No one had any chance to properly include that information in their pricing or bidding.
- juiceland 1mo ago
  [flagged]
- DannyBee 1mo ago
  Corn is heavily subsidized,also has (in the US) federally prvided insurance programs against plunging prices, has paid uselessness(ethanol). Despite all of this corn has caused massive agriculture bankruptcy/takeover when it has failed anyway. So it's more "what's special about corn". It is also fairly hilarious to claim the parent is denying basic economics and then bring up corn as an example of having successfully managed economics. If the scales were not being thumbed, and "basic economics" were in play, corn would be in very very bad shape. In the case of DRAM, there is an incredibly long history of these gloom/glut cycles, and they have stayed roughly the same timeframes (~3 years) since the 1990's. Almost all the ones who have survived this long are either in the same kind of boat as corn - protected in various forms from the downside - or don't increase production and get caught out until they are absoultely forced. The very temporarily increased profit is not worth going bankrupt for - they make more money long term by being very cautious and know this. There are a near infinite number of economic studies you could look at (and several sibling comments cite some) - DRAM manufactuers don't chase the price and probably couldn't anymore if they want to. None of this denies basic economic theory, of course, since economic theory is not exactly "rigorous", even to the degree it could be (IE even the parts that are pure analysis of data rarely reproduce!).
  - SR2Z 1mo ago
    I don't think that anything you said is wrong but I also don't think that memory consumption is going back to the old baseline... well, ever. Memory is just too useful now that you can use it to drive cars and write code.
    - nemothekid 1mo ago
      The problem is that is speculation and the market barriers are currently too high for losing business to be a threat. The two outcomes are (1) you overbuild, you end being wrong, you go bankrupt and lose everything or (2) you are right, but since you didn't overbuild, you lost out on some revenue, but demand still exists 3 years later and you didn't lose everything. In any other business choosing (2) would mean someone else swoops in and steals all your business. It doesn't look like this is at all possible for memory fabs.
- p1necone 1mo ago
  The capital investment needed to bring new chip fabs online and to staff them is likely orders of magnitude higher than that needed to buy land to grow corn on. And then the ratio of investment to sell price on that land + infrastructure is probably significantly worse for chip fabs that potentially aren't needed to satisfy demand anymore a few years from now. "If the price is high enough" is of course technically true, but the scale of what high means in this context is important.
- crote 1mo ago
  Nontrivial markets don't behave like Economics 101 textbook examples. Samsung, SK Hynix, and Micron have a combined market share of 90% - with most of the rest being a very new-to-the-market CXMT. It is a cutthroat market which behaves like a stereotypical "pork cycle". Semiconductor fabs cost billions to build and take years to complete, so you better be damn sure you have buyers before you start constructing one. You and your competition overestimated the demand? You have to pay back the construction cost, so you're now in a race to the bottom and one of you is going bankrupt. Ever wondered where Intel came from? They started out as a DRAM manufacturer, which dominated their revenue well after the introduction of their first microprocessors. But in the early 1980s the glut of supply from new Japanese manufacturers made it so unprofitable that they had to ditch the memory market altogether. The stories of Texas Instruments and Motorola aren't much different. And that's not even mentioning the likes of Mostek, which once held a 85% market share and was dead less than 5 years later! Oh, and those Japanese manufacturers? All gone, pivoted like Intel or died like Mostek. So no, the three remaining DRAM manufacturers aren't going behave like headless chickens and start ordering new fabs just because there's a bubble causing a temporary demand peak. Unless those AI companies are going to pay in advance, in cash, for an entire fab, they'll just have to wait and deal with the price increase.
- vannevar 1mo ago
  >Commodities like corn have been managing this for a long time… what’s special about chips? Chips aren't grown, for starters. They require very expensive facilities that take a long time to plan, build and start up. And ag firms are not seeing their stock price skyrocket based on the assumption that they will show exponential revenue growth every quarter, so there's no incentive for them to overbook their capacity and hope for the best. Maybe if the population was doubling every six months, you'd see something similar in corn. Prices in the real world are not perfectly elastic, and big deals are often locked in long before actual production.
- inigyou 1mo ago
  How much would you produce a RAM chip for me for? Not buy - produce. It's a frictionless market in a vacuum right? No barriers to entry. You could make one right now if you wanted.
- deleted 1mo ago
  [deleted]
- 1718627440 1mo ago
  > I’m confused because this reads like a denial of basic economics. If the price is high enough, the chip will be produced for you. That's a classic stereotype of what an economic "expert" is going to say, while completely ignoring reality. Just because someone is willing to pay for it, does not mean, that goods just materialize. Sure, a lot of the time someone finds a way, but that is still limited by physical constraints: lack of expertise, lack of needed resources or as in this case simply lack of time.
HWR_14 1mo ago
It could be tricky. Or, since supply (in the short term) is pretty well established, they could just auction off chips.
HumblyTossed 1mo ago
If you can only make X number of widgets, you must increase the price until demand stabilizes at X.
- docjay 1mo ago
  Why must you increase the price?
  - LoganDark 1mo ago
    Because if you take orders otherwise you won't be able to fulfill them.
  - somat 1mo ago
    It is the other way around, When people want something they are willing to pay more for it. The manufacturer wants to sell to the person that will pay the most. While the person wants to buy from the manufacturer that charges the least. As such when the manufacturing capacity is below demand the price goes up until the item is worth what people will pay for it(at large, statistically, it works like an auction). The promise of capitalism is that as the price goes up it should incentivize manufacturing capacity to go up and as the capacity meets demand and the manufactures start to fight each other to be the one to sell the item the price goes down. Sometimes this works and sometimes it does not.
    - docjay 1mo ago
      Thank you for taking the time and effort to provide a clear explanation. I’m familiar with supply and demand though. My emphasis was on “must” as a lazy protest against greed being considered a mandatory part of capitalism. Prices don’t have to go up, someone just wants more money. If you happily sell apples for $1 and see a hungry person walking towards you, must you raise the price? I think that basic thought gets lost sometimes when people talk about shortages causing the price to increase. The shortage didn’t cause anything, some executive decided they want more money. That’s all. There’s nothing inherent in the system that requires it. Whether that’s OK or not is up to the reader, I just think people lose sight of the reality and talk about it like it’s gravity, rather than simple decision making.
daishi55 1mo ago
I don’t understand how there being essentially unlimited demand for their products that far exceeds supply and is driving up prices accordingly is somehow a bad sign for the industry? > Now, you could raise prices to the point where you destroy demand. You know supply and demand is like a curve right, you can find an optimal equilibrium? It’s not a cliff that you can fall off.
- Jgrubb 1mo ago
  I guess we'll see about that.
  - daishi55 1mo ago
    Yes, I guess we will find out if high demand for their products is good or bad for an industry.
- doubletwoyou 1mo ago
  It’s ideally modeled as a curve, but things are never that simple in real life.
- vannevar 1mo ago
  "Demand destruction" doesn't literally mean all demand is destroyed; it refers to the demand curve you reference. But as a sibling commenter notes, real business is rarely as clean as an econ textbook. In the real world, a supplier can contract to supply more units than they can actually produce. Their customers rely on the representation to make other related deals. And of course, the supplier can book the contracted revenue, causing investors to rely on the forward sales. They can't raise the price at that point, it's fixed in the contract. So if it turns out they physically can't deliver when the time comes, some number of the deals have to be blown up, causing related deals to blow up, etc., etc. That is the risk I was referring to.
  - noduerme 1mo ago
    Or: Supply and demand oscillate in a delayed way based on each other. A quick increase or decrease in one side takes time to ripple, and by the time it does, the organization may have reversed course. An airline overbooks flights. Lots of people get their flights cancelled. Takes six months for the fallout to settle where everyone who got burned booked their future flights on a different airline. 3 months out the airline has to cut the number of flights and cut prices in the face of falling revenue to reclaim market share. As soon as they do that, they're flooded with too many bookings. So they take the bookings and overbook flights again, but it takes time to bring the new flights online. It's not a 1:1 situation. Each time you miss the market you wobble a little further until all the inefficiencies of bad predictions eat you up.
sidewndr46 1mo ago
Aren't the advertised prices just a number now? When OpenAI or some other big player comes to buy months worth of production capacity, they aren't doing it at a publicly advertised price.
thegrim33 1mo ago
>> Now, you could raise prices to the point where you destroy demand Isn't that topic .. the first chapter of any economics 101 course? Supply and demand and how they influence each other? You think after hundreds of years of economic study we don't have any sort of grasp on these absolute most basic concepts?
- vannevar 1mo ago
  >You think after hundreds of years of economic study we don't have any sort of grasp on these absolute most basic concepts? Nonetheless, even after all these hundreds of years of economic study, companies still make mistakes (and occasionally, commit fraud). And we still have massive economic crashes. If only everyone understood the "basic concepts", all of this would go away and we would achieve 100% economic efficiency at all times. What a pity.

HumblyTossed 1mo ago

This is what consumers are always told. Prices go up as demand goes up or scarcity increases.

sandworm101 1mo ago
But once you get past econ101, you are taught how markets react to percieved bubbles, how those with near monopolies would rather pocket a windfall now than risk investing in future expansions.
- dismalaf 1mo ago
  Well, look at AI. It sure looks like a bubble, why wouldn't every fab just profiteer now?
  - scrtm 1mo ago
    micron is up to like 85% gross margin this year
    - dismalaf 1mo ago
      Yes, when demand spikes prices rise.
      - scrtm 1mo ago
        sure, but spikes are sharp and demand is expected to continue outpacing supply/capacity for the foreseeable future afaict

toss1 1mo ago

Paying more would not help you when there is no more supply. It is a zero sum game. Maybe you could pay someone else who is less desperate to part with some, but that does not increase supply. Nine women cannot produce a baby in a month, even though you could average about one per month if you wait about nine months.