Eco, that was a very long-winded self-contradicting argument you just posted.
Rebates represent volume discounts, a practice that is common in any business or industry. They effectively LOWER ASPs. You are trying to have it both ways, by arguing that Intel enjoyed the market power of lower ASPs while earning the benefits of higher ASPs.
You are demonstrating your lack of comprehension.
You CAN have it both ways; By guaranteeing a certain volume by offering a rebate on the last few percent of processors, you can increase your ASP.
For the truly thick-headed who still can't figure this out:
(Each number represents a single widget's price)
Option A) 9.0 + 9.0 + 9.0 + 9.0 + 9.0 + 9.0 + 9.0 + 9.0 + 9.0 + 0
Option B) 8.1 + 8.1 + 8.1 + 8.1 + 8.1 + 8.1 + 8.1 + 8.1 + 8.1
In each case, the OEM pays for 9 units, but in Option A, actually receives 10 units; That's good for the customer, but has no effect on the end consumer because the ASP is the same.
Now, let's say Company X knows that the OWM needs 10 units, and Company Y can't supply more than a few units to this OEM because of their lower capacity.
By offering parts at $9/unit and a 100% rebate on the last unit (or it could be structured as a per-unit "first dollar" rebate with the exact same effect), i.e. option A, Company X creates a very strong incentive (i.e. a "gun to the head") to the OEM to purchase all 10 units from them. Otherwise, they're looking at this scenario:
(Let's say Company Y sells units at $7/per, underlined)
A) 9 + 9 + 9 + 9 + 9 + 9 + 9 + 9 + 9 + 7 = 10 units, $8.8/unit
B) 9 + 9 + 9 + 9 + 9 + 9 + 9 + 9 + 7 + 7 = 10 units, $8.6/unit
Or even if customer y sells at $1/unit:
C) 9 + 9 + 9 + 9 + 9 + 9 + 9 + 9 + 9 + 1 = 10 units, $8.2/unit
vs., with first-dollar rebate,
D) 9 + 9 + 9 + 9 + 9 + 9 + 9 + 9 + 9 + 0 = 10 units, $8.1/unit
Notice, the 10th unit for Company X is literally (or effectively if structured as a first-dollar rebate) sold below cost... For free, in fact.
By not achieving the rebate trigger, the OEM would have to take widgets at $0/unit from Customer Y if they don't want to increase their costs.
Now if Company X were to just accept $8.1/unit across the board but without the rebate trigger:
E) 8.1 + 8.1 + 8.1 + 8.1 + 8.1 + 8.1 + 8.1 + 8.1 + 8.1 + 7 = 10 units, $7.99/unit
HEY! That looks good for OEM AND the consumer, better than all the other cases listed above, in fact!
And even better for the OEM and consumer:
F) 8.1 + 8.1 + 8.1 + 8.1 + 8.1 + 8.1 + 8.1 + 8.1 + 7 + 7 = 10 units, $7.88/unit
And so on:
G) 8.1 + 8.1 + 8.1 + 8.1 + 8.1 + 8.1 + 8.1 + 7 + 7 + 7 = 10 units, $7.77/unit
Hell, without that rebate trigger, the OEM has an incentive to buy all the Company Y widgets it can, to better compete with other OEMs through lower costs!
So, with a 90% trigger on the a "rebate," Company X leverages its position as dominant supplier to
A) increase, not decrease, its bottom line, while
B) extorting OEMS even while lowering their margins, while
C) excluding competition, and while
D) harming the customer!
I.e. your argument is HOSED.
QED.
fpg |
