By that logic things should get more expensive, not cheaper, as the demand increases.

To put it another way, why wouldn't someone undercut the current suppliers and sell at just above their marginal cost and take over the whole market.

The whole NAND industry is suspected to be engaging in price fixing/collusion[1]. They've already been caught doing it in the past and paid out a $300 million settlement over it back in 2006.

[1] https://bit-tech.net/news/tech/memory/samsung-micron-sk-hyni...

That article is about DRAM, not NAND. Any article that talks about SK Hynix as a major player but doesn't mention Toshiba is clearly not about flash memory.

Ah yes, my bad. The lawsuit in that article is indeed specifically about DRAM. A lot of the reporting on this mixes them up for some reason. But the DRAM and NAND industries are largely the same companies and both have been under investigation for price fixing recently.

https://www.extremetech.com/computing/261330-china-investiga...

The DRAM and NAND markets are similar, but there are important differences. The NAND market has several more major players and is significantly more competitive.

And the Chinese accusations of price fixing need to be understood in the context that they're trying very hard to get their own NAND fabs up and running, almost certainly using at least some stolen tech. Even without Chinese influence, NAND prices have fallen dramatically since that article was written, due to ordinary healthy market forces.

Sandisk and Toshiba have been investigated for price fixing.

What a weird article. The latest brouhaha is about memory, not storage. The website shows a NAND SSD though as the main picture... strange... and incorrect.

>To put it another way, why wouldn't someone undercut the current suppliers and sell at just above their marginal cost and take over the whole market.

Moat. Or the Entry Barrier. You can't built a Fab, ignore the yield and expect it to be profitable. TSMC famously said they will never enter the NAND and DRAM market and thought of those as commodities. In 2017 that look utterly stupid when NAND and DRAM prices were sky high, while not widely reported, making Samsung Electronics the most profitable company in the world ( They own ~60% of the world's DRAM and NAND market ), even more so than Apple. By 2018, a 5% drop in World Wide Smartphone shipment trigger a knock on effect, the prices has seen been plummeting. Still profitable, just not as much as they were.

It was once thought the $100B USD from China would have solve this problem. Even if they make 50% less yield, and earned net zero margin, along with forcing Chinese Smartphone companies to use a percentage of those components, should have been enough to sustain those Chinese based NAND fab. Turns out it wasn't quite as easy as they thought. Most of the DRAM and NAND were far too inferior. 3D NAND, or Multilayer Stacked NAND along with leading edge node is a huge barrier of entry.

One reason why you keep hearing there are lots of IP theft going on.

Note: All the Apple product sold in China are using Chinese bases NAND.

> By that logic things should get more expensive, not cheaper, as the demand increases.

This is... exactly what everyone expects, and the assumption of every economic graph in the world?

The stupidest, most basic supply-demand model is:

Prices fall with falling demand and/or rising supply.

Prices rise with rising demand and/or falling supply.

> This is... exactly what everyone expects, and the assumption of every economic graph in the world?

There are actually markets where the opposite holds. Basically anything with high fixed costs, because the more units sold, the less of the fixed costs each unit has to cover.

But fabs don't really work like that because, while very expensive, they have finite capacity. A fab that can produce a million units costs a billion dollars. If you want two million units, that'll be two billion dollars and be available a few years from now. And if you build more capacity than there is demand, you're bankrupt. So they purposely build somewhat less than expected, which when demand is higher than expected results in much more demand than supply.

The second fab on an identical process node is cheaper than the first.

Sure, but it's not as if the first one is a billion dollars and the second is a nickel. The numbers are of approximately the same order of magnitude.

Because factories for that are hard and very expensive to build?

You need excess supply before you can try that. The question is can anyone raise prices and still sell out. This is a complex question (and often the answer is yes in the short term but you shouldn't because your customers might invest in an alternative and not buy at all in a couple years)

This is the Eco 101 way of thinking about it. Reality is more complicated, and more advanced economics models reality closer. Basically put, what you are describing is whats called a Perfect Market. A Perfect Market is one in which there are no barriers to enter or leave the market as a producer or consumer. However the vast majority of markets are not like this. For example, the sheer complexity and amount of money needed to start a new NAND factory is itself a giant barrier to entry. Most markets that have a high barrier of entry take on a market structure called an Oligopoly. An Oligopoly is when there are only a few producers in the market, and it is difficult to enter the market. The difficulty need not be because of anything nefarious from the producers, it might only be because the production process is complex and/or requires a lot of technical expertise.

In Oligopoly markets, because there are only a few producers, the producers have more leverage over their buyers and are therefore able to charge prices higher than the marginal cost of production.

To your suggesstion, lets say I realize this and I want to start a NAND factory that undercuts my competitors by a little bit but leave me plenty of profit, I have to first build a factory large enough to reach the economy of scales that my competitors have. Reason for that is for a period of time, the marginal cost of production decreases as sheer production increases because the process gets more streamlined and automated. However to do that I need to hire engineers who know how to make a NAND, and maybe I need permission from the Chinese communist party. Then I need to get a bank to agree to give me a loan so I can have enough money to build my factory and hire my engineers. Banks probably are not going to be too keen on lending an unknown quantity and will likely charge me a higher interest rate to compensate for that risk. Only then can I enter the market.

So as you can see while its not impossible to enter the market, its not easy either. Since thats the case, the few existing producers can, without any nefarious activity (which is not to say there isn't any, but its not required), charge prices higher than the marginal cost of production.

> the producers have more leverage over their buyers and are therefore able to charge prices higher than the marginal cost of production.

pretty nefarious if you ask me. we gotta own the means of production! take-over these oligopolies and turn them into worker-owned-and-directed cooperatives!

Your comment would have been more valuable without the jibe at the person you were replying to.

Sure, that's the economical aspect of it.

On the other hand it means the technology is established and people prefer to buy SSDs over HDs. Speaking of myself, I wouldn't consider buying an HD laptop ever again.

This means companies can invest in very long-term endeavours to transform their HDD production businesses into SSD production businesses. The costs are high but the risk is low, lower or at best equally high of continuing with HDDs if you ask me.

The article below has a graph showing the number of "Client SSD vs HDD units" shipped by Samsung over the last 6 years. Given current trends, the SSD shipments will very likely exceed HDD in the next 12 months.

https://www.theregister.co.uk/2018/11/23/ssd_market_q3fy18/

That's interesting and thanks for the link.

I would have guessed SSDs surpassed HDDs already since 2 years on the Client.

Is average price that useful in this context? Surely there would be very fast high end drives that would push that cost up?

It seems you are much smarter than the rest of us when it comes to understanding supply and demand curves, but why don't you help us walk through an example, okay?

Suppose it costs -- and I am making this up -- $10 to produce the first 1000 units, but only $1 after that.

Suppose people are charging a lot of money, say $50 for a unit.

Won't you increase production to try to capture that demand.

After that, because you have increased production you enjoy economies of scale, and the price comes down.

If you are the only producer, you have no incentive to come down, but if there are other producers you will want to undercut them. In this case, you will bring down your price to gain more market share.

Please help us understand what we are missing with your shrewd understanding of supply and demand curves.

Because supply and demand curves aren't smooth - Increasing production scales linearly up to a point, and then you need to build a new factory. Samsung is pumping out all the SSDs it can produce. It is probably also building new factories, but the capital investment and lead-time on that are significant, and until those factories come online, they're simply sunk cost.

Customer demand is not smooth. I will buy precisely 0 SSDs at prices > $125 per 1T drive, and I will suddenly buy 4 as soon as the price drops below there. There are thousands to millions of other customers will scattered plot points around that area, but while you can draw a smoothed graph over them and be reasonably correct, they do not actually represent a mathematical law.

Further - Information is imperfect and markets, for all their elasticity, are only trending towards efficiency.

This all assumes you're arguing in good faith. This in itself is an unreasonable assumption - Your last, mocking line seems to belie it. As does this line.

Nothing in the argument I laid out has anything to do with smooth curves. The same arguments apply for lumpy or unsmooth curves.

OP was talking about 10 year lags! Please read the whole thread in context.

NAND prices have dropped considerably over the last 10 years, but not as fast as hard drive prices.

https://static.seekingalpha.com/uploads/2017/9/24/9577541-15...

Increasing production of semiconductors means bringing up a new fab. It's incredibly expensive and takes years.

Samsung et al do build new fabs, but at a significant lag to demand for logistic and risk-mitigation reasons.

It seems that you assume that if one producer sells its product for slightly less than its competition, then it will get all the customers, à la Bertrand competition.

But if it is not the case, and lowering your price only wins you _some_ but not all customers, then there is no reason to expect that the price point that balance gaining new customers vs selling each product for less will be equal to the marginal cost and not above.

That the growth of demand is outpacing the growth of supply. I thought he was fairly clear about that.