Video card economics question

[DGuller]

I'm sure some of you are already aware, but over the last several months, Nvidia and AMD both came out with the next generation of video cards, whose performance takes a great leap forward.  Coupled with that, the prices for the cards stayed the same or even went down, so the performance/dollar ratio overall skyrocketed with the new generation.  That's a great deal, right?

Yes, it is, and many people thought the same thing.  So many people in fact that these cards have been out of stock pretty much constantly for many months now.  If you're really jonesing for a new video card, you have to go to some sketchy neighborhood and buy it from a scalper in a dark alley, or keep hitting refresh on Newegg and hope you get lucky.

My question is, why the fuck did it have to be this way?  If Nvidia and AMD have such a hot commodity, why in the world would they set the prices so low that you can't actually buy one legitimately?  Why would they give away so much profit to the scalpers when it seems like people would be happy to hand it to them?  It seems like a simple Econ 101 situation here, but I must be missing something.  What is it?

[crazy canuck]

They are competing for market share not short term profits.  AMD wants to eat Nvidia's lunch and Nvidia wants to keep its market.

[DGuller]

They are competing for market share not short term profits.  AMD wants to eat Nvidia's lunch and Nvidia wants to keep its market.

How does it help your market share to sell out your inventory for a low price when you can sell out your inventory for a bigger price?

[celedhring]

Video cards have a significant OEM business (and we've just had a new generation of consoles being released). I presume that they can't/won't price consumer cards exponentially higher than cards they are selling to be integrated into other devices.

Plus nVidia and AMD have been locked into a fierce competiton for a while.

[Admiral Yi]

Didn't you start a thread almost exactly like this like 10 years ago?

My uneducated guess it they set a price that will maximize profit over the life of the card.  They feel they can't set a premium price for early adopters (you) and then drop the price for everyday use.

[Barrister]

I think there's a kind of first mover disadvantage going on.

If, say, NVidia upped their prices that would leave AMD as having the more desirable card and would let AMD sell as many cards as they can make.  If they colluded and both raised prices at the same time that would go away - but of course that would be illegal.

[The Brain]

You know they both have scalper divisions, right?

[The Minsky Moment]

The simplest explanation is that they miscalibrated demand.  They might be able to squeeze out some profit by raising unit prices but at the cost of tainting the brand with accusations of price gouging.

[Maladict]

I should get a new card, it's the weakest part of my pc 
Who rules atm, AMD or Nvidia?

[celedhring]

The simplest explanation is that they miscalibrated demand.  They might be able to squeeze out some profit by raising unit prices but at the cost of tainting the brand with accusations of price gouging.

Pretty sure I read these scalper stories every time they release a new generation of cards (production takes a while to ramp up so supply on release is usually very small while demand is very high). Now, I agree that they probably don't want to be accused of price gouging just for a quick buck, given that they will be producing and selling these cards for a good few years.

[crazy canuck]

They are competing for market share not short term profits.  AMD wants to eat Nvidia's lunch and Nvidia wants to keep its market.

How does it help your market share to sell out your inventory for a low price when you can sell out your inventory for a bigger price?

Having a higher price would not increase the amount in inventory available.  This is a manufacturing problem. 

[DGuller]

They are competing for market share not short term profits.  AMD wants to eat Nvidia's lunch and Nvidia wants to keep its market.

How does it help your market share to sell out your inventory for a low price when you can sell out your inventory for a bigger price?

Having a higher price would not increase the amount in inventory available.  This is a manufacturing problem.

What I'm saying is that if Nvidia and AMD sell every card that they can produce, then they can't change their market share.  Their market share is whatever share of video cards they manage to produce.  You can only change your market share by pricing if you're not selling out every card that you can possibly produce.  Selling out 100,000 of your video cards at $500 doesn't increase your market share compared to selling out 100,000 of your video cards at $800.

[crazy canuck]

They are competing for market share not short term profits.  AMD wants to eat Nvidia's lunch and Nvidia wants to keep its market.

How does it help your market share to sell out your inventory for a low price when you can sell out your inventory for a bigger price?

Having a higher price would not increase the amount in inventory available.  This is a manufacturing problem.

What I'm saying is that if Nvidia and AMD sell every card that they can produce, then they can't change their market share.  Their market share is whatever share of video cards they manage to produce.  You can only change your market share by pricing if you're not selling out every card that you can possibly produce.  Selling out 100,000 of your video cards at $500 doesn't increase your market share compared to selling out 100,000 of your video cards at $800.

If they increase their price and the other does not then purchasers, who have to wait anyway, will order and wait for the lower priced product.  AMD is going after Nvidia's market share, they are not going to achieve that buy letting Nvidia price their product lower.  And Nvidia won't willingly let AMD in by making their product more expensive.

[mongers]

I should get a new card, it's the weakest part of my pc 
Who rules atm, AMD or Nvidia?

ATM, the screens that come with them aren't very good, but the other functionality is awesome.

[DGuller]

If they increase their price and the other does not then purchasers, who have to wait anyway, will order and wait for the lower priced product.  AMD is going after Nvidia's market share, they are not going to achieve that buy letting Nvidia price their product lower.  And Nvidia won't willingly let AMD in by making their product more expensive.

You can lower the price later, once the pent up demand stops overpowering your production capacity. 

I guess the answer that some people gave here, that card makers don't want to appear to be charging extra to their early adopters, and would prefer to send them to the scalpers instead, makes the most sense.