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

To: wbmw who wrote (247861)	2/15/2008 3:35:17 PM
From: fastpathguru	Read Replies (1) \| Respond to of 275872

Remember your earlier premise: Intel would have to raise prices to slow demand because they wouldn't have the capacity to meet it, given your hypothetical situation involving an instantaneous disappearance of AMD. Whether you realized your own words or not, you were proposing a situation where Intel would take advantage of PRICING ELASTICITY to lower demand for their products to meet capacity constraints. It's nice of you to admit that short term, Intel could easily jack prices up. (Stubbornly clinging to the term "price elasticity" is improper here, since in this context it only refers to the response in demand to changes in price after a new demand curve has emerged once AMD has exited. It ignores, by definition, the change in demand Intel would experience with AMD's exit.) I believe even chipguy has admitted that longer-term, an Intel-without-competition would be free to slowly increase margins by controlling supply. Maybe someone has a link. fpg

To: wbmw who wrote (247861)	2/15/2008 5:40:57 PM
From: pgerassi	Read Replies (1) \| Respond to of 275872

Wbmw: You get an A for fantasy, but an F for Economics 101. It isn't unit demand that is maximized, its revenue. You have to multiply ASP by unit demand to get revenue. Its easy to maximize demand, you just drop prices to zero. Sure the company loses a ton of money, but you are then selling the most units. Problem is that companies generally want to make money. The goal is to maximize revenue which in a high fixed cost business like semiconductors, usually is very close to maximal profits. You want the company you hold stock in to maximize profits. That way the stock is usually at the highest possible price at that time (given a rational market (something really hard to get)). So you test whether you are above or below peak revenue point. You multiply current units by current ASPs to get current revenue. Now you raise ASPs by 10%. Take the new unit demand and multiply the two together. If you have more revenue, you are to the right of peak revenue and need to raise ASP more. If the opposite, you need to cut ASP to get to peak revenue. You also assume the elasticity stays the same no matter the unit volume. That is definitely not true. In the beginning demand is very inelastic, until the first unit is sold. Price drops cause no more units to be sold. Just think about that. After that, prices are very elastic as small decreases, increase units greatly, on a percentage basis. At the other end, at maximum volume, a single unit drop, increases prices infinitely. Hey once everyone is sick and tired of them, no one will take them, even if its free. So in trying to grow a mature market, you are nearly always on the very inelastic side. Only technology or social breakthroughs can break that by turning a mature market into a growing one. Those are market changers. Even you stated that CPUs had become a mature market. With both AMD and Intel trying to grow those markets, we are on the inelastic side of peak revenue. Thus the way to maximize revenue, and thus profits, is to raise prices. And once there, you introduce technology only as fast as would boost peak revenue. Which is much slower than growing a mature market. As a near perfect monopoly, you can take the time to find that peak revenue (you don't have a competitor that makes it harder to find). Thus Intel will raise prices, they will have to. And they won't drop them again. Pete