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Technology Stocks : Advanced Micro Devices - Moderated (AMD) -- Ignore unavailable to you. Want to Upgrade?

To: wbmw who wrote (247761)	2/13/2008 6:47:31 PM
From: pgerassi	Read Replies (1) \| Respond to of 275872

Wbmw: History has proven the CPU market as price inelastic. Most of the demand still comes from the corporate world. There a $100 price change doesn't alter demand much, if at all. Especially since most go for $500 to $1000. The effect is even smaller in servers and laptops. The argument isn't whether $10K PCs versus $1K PCs, but between $1K PCs and $1.1K PCs. How much units does Intel sell of the cheap stuff? Wouldn't they rather sell the same units in more expensive stuff? So with AMD gone, they could lose 25% of their cheap stuff and sell 25% more into the expensive stuff. Sure you might not buy, but will 80% of the world wide market buy the higher prices? Especially since there would be no where else to get them. Another way is to look at the market as what percentage goes to the corporate world and what goes to the retail one. If its 33% retail and 67% corporate, losing half of the retail still wouldn't drop demand to 80%, yet that would double prices even at 1:1 elasticity. Going to 67% corporate and 13% retail would increase prices by 150%. That would take a $130 ASP to $325 ASP. Given the above, AMD could make POS CPUs and yet people would buy it just to make sure they don't pay too much for Intel CPUs. The trouble is that AMD makes good CPUs and plenty of them. Pete

To: wbmw who wrote (247761)	2/13/2008 8:51:24 PM
From: gvatty	Read Replies (1) \| Respond to of 275872

The dream of any monopoly seller is to provide a good for which there are no alternatives. Such a good, however, tends to be relatively inelastic. And consequently marginal revenue is negative, which prevents profit maximization. Are these aspiring monopolies misguided? Should they be searching for goods with elastic demand? Are they unaware of the relation between elasticity and marginal revenue? Do they not know that they can never maximize profit if they produce a good with inelastic demand? A Profitable Journey The monopoly dream is not as misguided as it might first appear. The key is the phrase "profit maximization." Profit is MAXIMIZED when marginal revenue is positive and demand is elastic. In other words, when profit is maximized there is no way to INCREASE profit by doing something like increasing the price. While profit maximization means profit can go no higher, the lack of profit maximization only means profit has NOT reached its peak. It does not mean profit is lacking. It does not mean that a monopoly firm is earning NO profit or incurring an economic loss. The lack of profit maximization ONLY means that the monopoly can take steps to increase profit. It can increase profit by doing something like increasing the price. If a monopoly faces an inelastic demand curve, increasing the price is exactly what it can do. If the price of a good with inelastic demand is increased, then total revenue and profit also increase. Today the price is $1. Tomorrow the price is $2, and profit increases. The next day the price is $3, and profit increases again. When prices rise so too does profit. As long as demand is inelastic, then profit keeps rising. A "maximum" is not reached. Is this is such a bad thing for the monopoly? Not being AT THE MAXIMUM, but ONLY being able to increase profit is not really all that bad. Few firms would turn down the opportunity to be the sole provider of an inelastic product. Sure they might never MAXIMIZE their profit, that is, reach a nice stable equilibrium. But they can increase profit day after day, month after month, year after year, by raising prices. The "problem" is that profit can always go higher. If AMD is gone the only competition in the CPU market is the Cyrix Centaur. How many companies have made pc chips for x86. They don't seem to be popping up every day. Intel wouldn't theoretically be able to maximize profits but they would make a boatload of profit.