Why must you increase the price?
If there is demand for N chips at $X price, but you only have N/2 chips, then half the people aren't going to be able to buy them. The people who really need the chips, and would be willing to pay a lot more than $X for them, will be competing with people who are only willing to pay $X for them. You will end up getting scalping and shortages and hoarding. Since people know that there are enough people willing to pay a higher price, everyone will try to buy them at $X, even if they don't need them at all. Just buy them at $X, and immediately sell it to one of those companies willing to pay a lot more.
The market is extremely inefficient... since the manufacturer isn't charging enough, you get way too many people trying to buy them from the manufacturer.
So you find the price where the demand is N/2 chips, and everyone who is willing to pay that much will get one, and there is no profit for scalpers so the only people who will buy them will be actual companies that need them.
I don’t believe scalpers are an issue in B2B; these aren’t concert tickets being sold to the general public.
It’s clear you grasp the economic theory as it’s taught, but my comment was meant for you to question it. If someone is hungry you can charge more for food. The market allows and encourages it. But don’t mistake that for “willingness” and don’t mistake raising the prices purely to get extra money from the exchange as some inevitable law of the universe. You’re welcome to love the concept, but don’t whitewash it.
Demand is elastic. If the price of potatoes rises to $1000 / kg most people will switch to using pasta or rice for their dinner instead. There might be a shortage of potatoes at $1 / kg, but not at $1000 / kg.
If my 7-year-old computer were to die tomorrow I would've normally replace the entire thing. It has had a good life, the newer generations of hardware are a decent bunch faster, and it would be nice to get some additional features. With current RAM prices? No way I can afford to upgrade to DDR5, I'll have to get a replacement AM4 motherboard / CPU to fix it.
> I don’t believe scalpers are an issue in B2B
They are called "speculators". DRAM is a commodity and is traded no different from, say, potatoes. It's why there are companies like DRAMeXchange. DRAM module assemblers like Kingston, G.Skill, and Corsair will buy chips from whoever gives them the best deal. Similarly, anyone assembling hardware using DRAM will have stockpiled it when the AI boom became noticeable - with some almost certainly selling it off now that it has become too valuable to use for cheaper products.
My MacBook is showing its age, though. Hearing that 2027 wont be any better makes me hopeful all the vibe coders can ask for memory efficient implementations to stretch existing hardware a little further.
I've been thinking about this too. After being forced to work off a laptop with 6GB of RAM for a few weeks it made me appreciate my 32GB at home where I run Electron apps with abandon. It still seems crazy to me that we've normalized running an entire browser for a single program just because the UI frameworks are too hard/unfamiliar to the majority of programmers.
> just because the UI frameworks are too hard/unfamiliar
i take it even with ai companies will still do this, whith exhibit a being the electron-based codex app from openai...
If potatoes suddenly became $1000/kg, everyone would agree that there is a shortage of potatoes. While sure, people won't starve and will eat other things, it doesn't change the basic fact that there aren't enough potatoes.
The situation with RAM is even worse. If I'm trying to build and sell computing devices, I need RAM. Whether no one is willing to sell RAM at all, or whether they'll sell it only for 10x yesteryears's price, it doesn't make much difference to me, I'm still going out of business. Sure, that will then make demand technically go down, but not the shortage.
1) Some people won't be able to afford alternatives. They will starve to death
2) There may not be enough of other foods, so even if people have money, people will starve to death.
There are years where corn or rice or oats are of poor yield. A couple of years of that, and canned food and stored food is gone. It doesn't take long for "we have no <core staple food>", and things become bad.
This isn't a 3 month or year long blip in RAM pricing. If nothing changes, no bubble bursts, we won't see RAM become plentiful until 2035 at least. And a tight supply until 2030.
That's not a year of no potatoes. That's a decade of a core crop, with loads of calories, gone. That's "people are going to starve somewhere" trouble.
(I hate this food analogy, because in the West we've not seen a drought cause people to starve for half a century, if not longer. People are too complacent.
To speak to that, we grow crops where we get best value for the money. And best results. Corn cannot be grown in much of Canada, it needs a LOT of sun to mature, where as wheat can with a shorter growing season. Rice needs lots of water, where as other crops are more tolerant. Potatoes do well in certain soils. If there are no potatoes, you cannot just grow anything in that location.
Take away a core crop, and you can just lose those calories. Especially as farmers won't switch on the first year of a lost crop.)
RAM is quite durable, so I can imagine buying new servers with new CPUs, but instead of DDR5, it has DDR4 RAM slots. A loss of performance to be sure, but a good way to renew your fleet, and reduce the impact of all of this. But such boards aren't really here I don't think, not in quantity.
The year 1845 called, and they'd like a word
In a lottery, the goods are misallocated to a bunch of people who aren't getting the most value out of the goods, creating economic inefficiency. A bunch of GPUs would be sitting in warehouses waiting to be resold (either when the price goes up, or in the inevitable black market), or in my basement screwing around with them, instead of being deployed in a way that the most people can benefit from creating maximum economic value from their deployment.
Your gaming PC isn't as economically valuable as JPMorgan using AI for fraud detection, for example.
Moreover, if you are appointed god and force everyone to sell GPUs at one dollar just because you want cheap GPUs, then this is the last batch of GPUs that will ever be produced and you'll have a shortage until the end ot time.
There are many other ways to allocate capacity. For example, you could give preferential access to customers who sign long-term purchase commitments, or some other favourable terms. These other methods might correlate well with value to the seller and might be easier for buyers to pay.
Other methods could be "allocate to customers that you want to maintain a good relationship with." I suspect HBM is not allocated either with pure auctions or by lottery.
One of the most difficult shortages during WW2 was rubber, because there was no (known, at the time) comparable alternative.
With GPUs, rationing would have the same effect as a lottery -- you either get to run AI, or you don't.
If there was an Ozempic shortage tomorrow, it's not the morbidly obese people who "really need" it who would be getting it, it would be the Hollywood A-listers who need to drop 4 pounds for their next movie, or the billionaire who's feeling a little tubby. Price is a good allocation system, but it's important to recognize that it's not a mechanism for attaining some kind of ethically "best" allocation.
The people who really want the chips, and are able to pay a lot more than $X for them.
Please can y'all stop pretending that raising prices allocates resources by need and willingness to pay? With the level of spending power imbalance, the person who wants something and has too much money will ALWAYS squeeze out the people who actually need something and have less money. Always. No other factors are considered by the market.
That’s what makes this so distinct so it probably shouldn’t just be some offhand parenthetical at the end. It’s incredibly expensive, it takes a long time, and it’s incredibly specialized. You can absolutely forget the idea of a “disruptive startup” entering that space too.
Previously investing in that space didn’t make a lot of sense. Now that there are a lot of consumers willing to buy something they can build and sell at a price between the previous low point and the current high point.
The only tricky thing is that the current shortages need to continue until the fans are well up and running.
Even if the supply side suddenly crashes due to the AI bubble bursting or someone inventing a way to only need 1/10 of RAM, I can imagine them keeping the prices relatively high.
Building things happens a bit quicker in PRC compared to the US. If they see it as a way to undercut the US/Taiwan hegemony on the chip markets, it might even just fun to do it.
With the basic supply/demand curve, "shortage" and "discount" are synonyms and I know which word makes more sense to describe the scenario.
Normal people definition: there isn't enough to go around
Economist corollary: there is enough to go around, people are just buying more than they need because the price is low
Can you tell the difference between the supermarket put potatoes on sale and sold out, and there are no potatoes because of the potato blight?
(Other than a convenient-for-some/inconvenient-for-others "let the richest get the stuff first!" shift, and just pretending that we are all fully independent actors instead of members of a community?)
Raising prices is a way to filter for most valuable use.
This is a myth. The volume of inventory remains the same regardless of the price. When demand is higher than supply you have shortages regardless of price simply because you have unmet demand. If you raise prices, that demand is still unmet, you're now filtering that demand by who is willing to pay more so you maximize your own value and profit. Not even rationing prevents shortages because, again, the demand exists. Rationing simply tries to spread the supply around so more people get some rather than none. Price hikes instead say "who wants it badly enough?"
All demand is not equal. Some companies have very valuable business they can do with the inventory while other businesses have less valuable uses for it. The more valuable uses are willing to pay more, so higher prices means the most valuable uses get filled first.
Rationing does not stimulate investment this way.
Sometimes this works and sometimes it does not.
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.
if you happily sell apples for $1 and now there are VC-funded companies who need a ton of apples to produce some dubious crap and can pay you $5 per. And you are the only company selling apples.
what you should do is keep selling $1 apples to retail customers and charge corporations as much as they accept. you invest it into more apple trees and maybe subsidize the hungry people even
To be clear, I’m not taking a fully altruistic position. I’m just tired of price hikes on things, from apples to memory, being blamed on the weather rather than openly understanding that it’s a person wanting more money. “I can’t afford gas because of the shortage” - No, it was the CEO saying a number in a meeting and that person has a name. When someone is robbed we don’t say “an economic disparity caused a wealth adjustment.”