Because of COVID production issues and because of some technical issues with the super tiny processes that new semiconductors are using that reduce yields, products like video cards, CPUs, and gaming consoles have much more demand than they have supply.
To give an example, Nvidia 3000 series video cards have been basically out of stock since they launched 6 weeks ago. The second any site gets supply on stock, they’re sold out pretty much instantly, within minutes. Same deal with Ryzen 5000 CPUs, and I get the impression the new xbox/ps5 are similar.
So basic economics suggests to us - when there’s a low supply and a high demand, prices should increase. If all these products are selling out instantly with millions of buyers still waiting to get one, you’d think they’d bump up the price until they stopped selling out. And in fact, because they haven’t, because they’ve maintained the same normal retail price, there’s an army of scalpers looking to make up that difference in value by snatching up new stock as it comes in and reselling it for much higher prices. So why aren’t the manufactuers/stores just getting that extra value themselves?
The only thing I can think of is for PR reasons. They think charging more than expected for their products will be viewed as somehow exploitative and lower the perception of their brand which will affect future sales. I’m not sure I’m satisfied with this explanation.
I’m not sure that applies here. These definitely aren’t essentials, but they’re also new products. They were first available within the last month or so, not pre-existing products that predated the pandemic but were jacked up. So there’s nothing to say that twice the current price isn’t the non-gouged/proper price for a nvidia 3080 or ryzen 5600 or xbox/ps5.
I think this is mostly not wanting the PR hit that comes from doing so for the short term, combined with some pricing theory around initial product releases.
One thing to consider is that, sure, COVID has screwed up some supply chains, but nearly every new product faces supply crunches at release. Why don’t companies basically auction off the early units in the first few weeks or months? Because companies aren’t concerned with maximizing short term profits like that or ensuring that early units are the most (market) efficiently distributed. They set their price based on long-term costs and market predictions.
There are a lot of subtle and interesting reasons for this, but the big one is that it pisses people off when you jack up the price on something.
Increasing the price will lower demand. They don’t want to lower demand. They want to increase production. They’d be shooting themselves in the foot to lower the demand for their product temporarily while they work to increase production.
You shouldn’t dismiss the public relations aspect. This is a new product the company is trying to introduce into the market. They’re thinking of long term sales. They want to build up a base of customers who will choose their product over the years. They don’t want to create an impression that their product is high-priced or even variably priced.
Also, the prices and the reviews will be on the internet for ever. When you look for information on GPU’s, you’ll see that “At 1 million dollars, this product is overpriced and under performs” And there will be a column graph that shows “things per dollar”, comparing the different GPU’s.
Also, they won’t know how many of each variant they are physically able to produce until well into actual production. The relative numbers may swing dramatically, and, as wholesaler, they can’t swing the relative price like that.
(If you look at recent models, you’ll often see something like shortages of the 8 core model, but good availability of the 7 core model. Or vice versa. If most of them come out of production with one faulty core, they won’t have enough 8 core models to satisfy demand – then suddenly they may fix the production problem.)
As stated, the manufacturer has to balance pricing to what the retail market will bear and the cost they’re able to provide their product to the wholesalers. Set the suggested retail or actual wholesale cost too high and their product won’t sell.
In addition, if the manufacturer does set their suggested retail (which is exactly what it is, suggested) high in the beginning, then lowers it later, they reduce the perceived value of their product. Only the hardcore “I need the best now!” buyers will buy on the initial price and not wait like the majority until the price drops.
The video game console market does this, but by they time they officially drop the suggested retail price, they’ve saturated their primary buying audience and are looking to tap into the secondary market of those on the fence.
I don’t think they’re nearly so dumb as to misgauge the demand for video cards, unless perhaps this is something pandemic-related, and they realized it in like May, but couldn’t do something about it because of various manufacturing lead times.
In AMD/Nvidia’s case, I suspect they’re probably deliberately only releasing so many at a time in order to keep the buzz high and to let the high secondary market prices trumpet how awesome their products are. I mean, I’ve heard more about the Big Navi GPUs and Zen 3 chips in the past few months than about any other two types of PC components over years.
I mean, which one looks more impressive to prospective purchasers- selling something for $300 with plenty to go around, or having news and buzz about shortages and secondary market prices that are multiples of your MSRP? One looks like nothing special, while the other looks like something particularly awesome that’s hard to get your hands on. Then, after Christmas the shortages will probably tail off and go away.
NVIDIA has only recently recovered from a huge drop in their stock price due to an over-saturation of used graphics cards flooding the market after BitCoin value fell drastically. This impacted the release of the RTX line, since there were so many almost-as-good, high end used GTX cards for sale. Now, BitCoin is once again at a record high. I am not surprised at all that NVIDIA wants to be cautious of releasing too many graphics cards, too quickly. If all the BitCoin miners buy them up again in massive quantities, they’ll have another inventory problem once the bubble bursts.
In addition to the PR stuff, demand for video cards is very elastic. Buyers generally react to seeing higher-than-expected prices by deciding not to buy (or to buy later, when the supply chain has stabilized). There are actually very few people who will actually pay greatly inflated prices to get video cards right now. I suspect that if the manufacturer tried to sell for the “scalper” price, they would have a lot of stock left over.
The scalper can offer a small number of cards at a high price and hope to connect with the few “high-rollers” who are willing to pay to get their card faster. But the manufacturer is trying to pick one price for every sale and wants to hold that price for at least 6 months to a year, so that price at times is going to be below the (immediate) market clearing price.
Production yields at the start of a new run are low. For GPU’s and uProcessors and everything like that. If they can tune up production, it grows rapidly. If not as often happens, they never get up to anything like mass production, sell mostly partially-disabled parts, and concede market share. Either way, when starting out, volume is low because it’s hard.
It would make sense to sell these rare items at a higher cost – a lot of electronics have been sold that way – but these rare early-production items have limited present utility, and are also sometimes flaky and high risk. That works for some items, but as discussed above, not all markets work like that.
I don’t follow the pricing of such high-demand items, but it seems to me that the manufacturers are concerned about the success of each product. As others have said, it is a PR question. If the manufacturer prices their product too high then it might be viewed as “not worth the price” and never be a hit in the first place. The old adage that you only have one chance to make a first impression holds for new products as well. If it is a success, they will sell all the units they can make-and build their reputation for the next product. I am sure they price the initial sales as high as they think they can get away with, so the money will come in later-if it is a hit. Overpricing the item threatens that all important initial buzz. Better to play it safe and make more money in the medium term.
Another consideration is supply chain. this was a problem also in the early days of PC’s, when the 286 was replaced by the 386 and the 486…
Who do you want to raise prices? The manufacturer? Then the wholesalers and retailers are not going to order a $3,000 GPU card when the odds are there will be an equivalent one in 6 months at $600. Plus at that price, few people will buy. They don’t want to be stuck with overpriced inventory. Stability of price is far more important.
Where you see a more elastic demand would perhaps be on eBay, Craigslist or similar where the enterprising sorts will try to exploit that high demand to extract what the market will bear.
FWIW, decreasing price on any capital-intensive item slows uptake.
Imagine that you can put solar panels on your house today for 20K, with a pay-off period of 5 years. You should put solar panels on your house!
But you know that next year the price will be 10K, with a pay off period of 2.5 years. Is it worth it to put panels on your roof now? No, sensible people will wait, loosing $4K of benefit this year, but saving $6K net.
Since when has it ever worked like this before? I can’t recall anything similar from AMD, Intel or Nvidia in the past like what we’re seeing now.
It’s some combination of two things- demand is higher than usual or supply is lower than usual, or both. But in the past, they’ve been mostly in line with each other such that there aren’t months-long shortages of new components like we’re seeing now. And those guys aren’t stupid; they can forecast this kind of thing with reasonable accuracy, so it seems to me that possibly there’s increased demand due to COVID (entirely possible, but I don’t know how much more), and some sort of production snafus that are lowering demand.
But either way, the marketing types at both companies (AMD and Nvidia) are making hay while the sun shines- here’s an article that describes what I’m talking about, and says it’s dramatically increased demand rather than a supply issue:
Computing stuff (almost) always works like that, though. We know that next year’s mid-range video card will be faster than today’s top end card at 25% of the price. Or whatever the numbers actually are. In practice, there tend to be price points. $1000 will always buy you a certain tier of GPU, but each release cycle it will be a more capable GPU in that tier.
Particularly in the online / social media age, having shortages adds to the hype and therefore desirability rather than detracting from it. Setting aside the specifics of commerce under COVID, the best way to have blockbuster sales in months 3-6 is to have trouble filling the first months’ order and burgeoning backlogs. Juust long enough to get all the envy orders booked, but not so long that people lose patience with your fulfillment.