Can manufacturers raise wholesale prices just because of a temporary increase in demand?

I’m not asking about if their production costs go up because of shortage of materials or needing to retrool and hire more staff. I’m asking about just because they can. I suspect that this would be considered price gouging and if their competitors follow suit and keep their prices high, it may be price fixing and collusion.

Specifically, I’m asking because I’m having an ongoing post debate with someone on another message board about whether hard drive prices which are currently inflated because of Chia cryptocurrency mining* is because of higher wholesale prices or is just at retail, particularly because of third party resellers. He/she and I have a somewhat mutual agreement that the hard drive manufacturers (Western Digital, Seagate and Toshiba) can’t ramp up production without extensive planning and cost.

*Chia uses hard drive space to mine the code(?) to generate a cryptocoin. This is new as previously graphics cards were used for this task. Like with graphics cards, the more hard drive space you dedicate to the task, the higher chance that you’ll mine/earn coins.

Where we disagree is that he/she said in a recent post that prices may not return to normal, even when the Chia bubble bursts and the return on investment dwindles because the manufacturers will keep the prices artificially high.

I’ve been computing for 35+ years and lived through the 2011 Thailand flood that destroy Western Digital’s hard drive factory and the 2013 Hynix RAM factory fire. In both cases, prices soared for years, but eventually settled back down to pre-event prices and have decreased naturally.

Manufactures can set the price of their product at what ever price they want. The market place will determine if they are sucessful or not.

The question is not clear. The question in the thread title was answered above. Otherwise you seem to be asking about an opinion on the future prices of disk drives.

It’ll depend on the agreements they have with their vendors. I would expect that most of those agreements have terms (1 year, 6 months, etc) where the HD Man agrees to provide X drives at $Y/each. They wouldn’t be able to increase pricing until the end of that agreement. I’m speaking specifically of their deals with Dell and the other big PC sellers. They possibly (probably?) also have similar deals with the large box stores/Amazon. Smaller dealers/stores are either buying direct (i.e., spot price which can be raised at the whim of HD Man) or through a reseller who will probably match spot price because they need to make enough to replace their inventory. Gasoline works the same way - they don’t sell it to you for a price based on what they paid for it, but for a price based on their expectation of what it will take to replace it.

Isn’t price gouging only for natural disasters? Likewise, price fixing and collusion requires companies illegally agreeing to keep their prices artificially high. Prices go up in the markets all the time and that’s not price fixing.

Businesses raise prices all the time. Every introduction to economics text will tell you that when demand goes up, prices go up. It should seem obvious that prices go up because sellers raise them.

Some price gouging in some goods is illegal in some places under some circumstances. You cannot conclude from that qualified statement that manufacturers are generally limited in their ability to raise prices when demand increases.

Colluding to fix prices is illegal but you don’t seem to have any facts that even suggest there is any collusion going on. Do you have evidence that hard drive manufacturers got together and agreed to raise prices? Or to restrict their output to create a shortage? Because collusion requires businesses to conspire in such a way to raise prices.

There is nothing illegal when independent businesses see that demand (or indeed prices) for a good are rising and raise their own prices in response. That’s how free markets use prices as a signal to drive investment.

I’ll bet this is true. Do you disagree? In the short term, the companies may do things like extend production shifts into overtime or add an extra shift to produce more goods if they have the capacity. Goods produced at overtime wages cost more, so they will only do that if prices are high enough to justify the extra cost per unit.

If the companies lack capacity to increase production in the short term, they may need to invest in new factories, However, they will only do that if they believe the increase in demand will be long-lived, If they think it’s a temporary bump, companies aren’t going to spend years and millions to build a factory that will come too late to profit from the price bump.

For what it’s worth, there have been occasions when tech manufacturers have colluded to raise prices (for example, in DRAM chips 20 years ago). Maybe that’s happening in the hard drive market too but what you are saying about the market for hard drives directly contradicts the suggestion that there is collusion. You are saying that demand for hard drives is up because users are using them for cryptocurrency mining. That increase in demand has nothing to do with the manufacturers’ actions.

Businesses raise prices all the time. Every introduction to economics text will tell you that when demand goes up, prices go up. It should seem obvious that prices go up because sellers raise them.

I understand this. The question I have is, is it the manufacturer’s wholesale prices increasing the prices or the retailers? Hard drive prices have always been much higher outside the U.S. and reports are percentage wise, they’re much higher in Asia, where demand is highest. That’s understandable, but again, the question is, is it because of wholesale price increases or retail? I understand that it’s probably a bit of both, but are manufacturers really raising their wholesale prices by 50-100%+ and retailers just following suit?

It’ll depend on the agreements they have with their vendors. I would expect that most of those agreements have terms (1 year, 6 months, etc) where the HD Man agrees to provide X drives at $Y/each. They wouldn’t be able to increase pricing until the end of that agreement. I’m speaking specifically of their deals with Dell and the other big PC sellers.

Reports are that for now, the large scale buyers, particularly Enterprise and datacenter buyers, who comprise the majority of sales are unaffected because of what was written above. If I see Costco selling hard drives (which they probably don’t have a continuous buying agreement for) for twice as much as a couple of months, I’ll accept that wholesale prices have risen that much because of Costco’s policy of a max 15% markup on all their items.

The question is not clear. The question in the thread title was answered above. Otherwise you seem to be asking about an opinion on the future prices of disk drives.

You’re correct on both counts. I accept that manufacturer’s can raise prices arbitrarily based on market demand. What I don’t accept is the claim by the poster on the other forum that since the manufacturers have a taste of higher profits, they continue to maintain their pricing. Which leads to:

Manufactures can set the price of their product at what ever price they want. The market place will determine if they are sucessful or not.

Isn’t price gouging only for natural disasters? Likewise, price fixing and collusion requires companies illegally agreeing to keep their prices artificially high. Prices go up in the markets all the time and that’s not price fixing.

I’m not saying the manufacturer’s are in collusion to increase wholesale prices, that would be illegal. What I’m in disagreement with is the other poster’s claim that prices after this temporary rush will remain high without price fixing.

After the 2011 Thailand flood, it wasn’t until 2013 that hard drive prices returned to pre-flood levels. There where claims that the prices should have come down much quicker as the manufacturers quickly (of course at great expense, reflected in their initial pricing) ramped up production in their existing factories.

I’ll bet this is true. Do you disagree? In the short term, the companies may do things like extend production shifts into overtime or add an extra shift to produce more goods if they have the capacity. Goods produced at overtime wages cost more, so they will only do that if prices are high enough to justify the extra cost per unit.

I don’t disagree at all. What I’m contending is that the increased costs will eventually be recouped, just a in 2013 and prices will return to pre-rush levels, not remain artificially high just to maintain higher returns.

According to this and previous articles, actual physical sales of drives has been down for the past year or so, but total storage capacity sold is up. So in theory* the manufacturers could ramp up product production in time, meeting and hopefully for them, not exceeding demand.

https://www.forbes.com/sites/tomcoughlin/2021/02/07/in-2020-hdd-companies-shipped-over-1zb-of-storage-capacity/?sh=28cd5d064894

*Of course subject to long term return on investment concerns. It’s likely that this current rush and boom in sales will eventually, hopefully sooner than later, burn itself out as small scale mining becomes less profitable.

I’m not saying there is currently collusion, especially since at my layman’s level, I don’t know if the price increases are wholly wholesale, retail or most likely a combination of both, with my personal opinion being it’s heavily leaning on retailers, definitely third party resellers being the main profiteers.

Edit: The third party resellers being profiteers is evidenced on Newegg and Amazon, where even pre-rush times, as soon an item is sold out, they immediately offer their products at wildly increased prices, then drop back down once the product comes back in stock.

I’m sorry if I misunderstood your question.

There is evidence that prices in some markets are sticky downwards, meaning that once prices for goods have risen to a particular higher level due to economic circumstances, they drop more slowly even when those circumstances abate. To use one example (which I think is true but can’t find a citation for), gas prices rise quickly before a hurricane but drop more slowly after the hurricane has passed even if there is no lasting damage. I don’t know whether the hard drive market will have sticky prices like the gasoline market.

When ingredients are in high demand and those prices go up, manufacturers will raise the price of the end product so that their final return on investment, their cost, remains close to the same.

The manufacturer may also raise prices of the end product in anticipation of their costs going up even if the current supply of ingredients has not risen yet. Contracts for ingredients are often negotiated a year or more in advance. So purchasing is often a form of gambling. Do you lock in your next year’s supply at the current high price, which may go up even higher, or wait to see if it goes down. If you chose poorly the price may have gone up too much and the ingredient is not available when you need it. So the supply of almost everything is negotiated far in advance. Everything from anchovy meal to computer chips operate this way.

If you raise the price of your final product too high you may be at risk of your competitor having a better contract from their supplier and they can then lower the price of their end product and you are at a disadvantage to compete with them. Look into the commodities market for more insight. It is the hidden gambling market behind the stock market.

Welcome to capitalism.

I probably phrased by question and description of what brought it about badly.

As for hard drive prices being sticky, historically yes they have been. Which is my gripe with the other poster who talks about the manufacturers purposely maintaining the current high prices. While there have been spikes, prices have always come down, exactly because of what others have said, market competition and consumer demand.

I’ve said this for many years. IMHO, hard drives (and SSDs) have become a commodity because of its necessity for modern computing. The useful life of other computer components can be extended, but expanding hard drive space and fact that they die, often unexpectedly, necessitating backups (meaning more hard drives needed) makes it so.

I believe that because they’re a commodity, high prices / high profits can’t be maintained for an extended period. Barring collusion and price fixing between the three manufacturers, the market will force the lowering of prices. From what I’ve read we all agree on this and I appreciate the comments and confirmation. With your permissions, I’ll bring up some of the comments here the next time I battle with the IMO, unsupportable contention that prices will remain high made by the other poster.

FYI, for anyone wondering why I’m so upset with this other poster. He/she is a regular on the forum I’m on and often makes some very good posts which I often agree with. My concern is that there are often new posters on this forum who take whatever is said as gospel, then sometimes passes it along as (false) fact to others. In this case, it may have the consequence of people panic buying because prices won’t come back down, extending this period of higher prices because of additional, IMO, unnecessary demand. Even worst if they’re profiteers.

Unlike here, where most questionable claims are quickly given a “Cite?” response. On this forum, the “experts” as newcomers sometimes call the regulars are mere laymen like myself, with limited experience and knowledge. I’m sometimes viewed as Captain Obvious when I point out that what some regulars view as common knowledge is in fact completely foreign to the average visitor.

Of course, I can’t hold reign over all the regulars I disagree with, but I try my best to post a counterpoint to those statements that I see as unsupported by historical trends.

I won’t post what this other forum is because I want to keep my identity there, as here separate and anonymous as possible.

Emphasis mine.

I think this is a bit of an exaggeration. In fact, while prices remained above their pre-flood low for about a year and a half, they began to come down from their immediate flood-caused spike within a few months. I bought a couple of drives in the middle of 2012 that were only a bit more expensive than what I had paid before the flooding. This BackBlaze story from October 2012 talks about prices coming back down significantly by mid-2012.