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It's a market failure because in a market with proper competition it wouldn't be possible for Intel to do this without being undercut by someone else on the hig

It's a market failure because in a market with proper competition it wouldn't be possible for Intel to do this without being undercut by someone else on the higher end parts. If you're able to take e.g. an 8 core cpu, artificially disable 2 of the cores and sell the 8 core for $300 and the 6 core for $250, and still make a profit/break even on both of them then you could be selling the 8 core for $250 and your competition should be punishing you. Intel are only able to offer a "discount" because their profit margins are so high because of lack of competition.

mywittyname 6y ago
> sell the 8 core for $300 and the 6 core for $250, and still make a profit/break even on both of them then you could be selling the 8 core for $250 and your competition should be It doesn't work that way. The $300 premium chips are where all of the margin is, and is what finances the whole operation. If they production costs of in your hypothetical chips is $235, then Intel would be making $15 on the cheap chips, but $65 on the premium ones. Which means that one premium chip is worth the 4.3x the margin of a cheap one. Losing that premium segment is a big deal. Even if it is only 10% of the volume, because margins are so high, it ends up being like 40% of profits. This isn't new. Just about every consumer goods market works like that, from peanut butter to cars. You need the middle tier to have enough volume to minimize production costs, but you need to find that premium offering to actually make money.
- p1necone 6y ago
  If your production cost is $235, then you need to make $235 to finance your operation. Anything more is inefficiency that competitors in a healthy market would eat away at.
  - mywittyname 6y ago
    Then there must not exist any markets that meet your definition of healthy, because basically every mature market works like I described. It's the most efficient strategy for minimizing costs and maximizing profits. A fundamental principal of business is that a successful one needs to earn a profit. And that profit needs to be high enough to continue operation.
    - p1necone 6y ago
      Indeed there are no theoretically perfect free markets. I'm just arguing that Intel is getting away with a lot more than they would if they had competition more like other businesses; as opposed to the current situation where they only have to compete against AMD, and own enough patents between the two of them that it's basically impossible for new competitors to enter the market. No business needs to earn a profit. By definition profit is surplus to operating costs (and I include a reasonable emergency fund in the category of "operating costs").

mywittyname 6y ago

> sell the 8 core for $300 and the 6 core for $250, and still make a profit/break even on both of them then you could be selling the 8 core for $250 and your competition should be It doesn't work that way. The $300 premium chips are where all of the margin is, and is what finances the whole operation. If they production costs of in your hypothetical chips is $235, then Intel would be making $15 on the cheap chips, but $65 on the premium ones. Which means that one premium chip is worth the 4.3x the margin of a cheap one. Losing that premium segment is a big deal. Even if it is only 10% of the volume, because margins are so high, it ends up being like 40% of profits. This isn't new. Just about every consumer goods market works like that, from peanut butter to cars. You need the middle tier to have enough volume to minimize production costs, but you need to find that premium offering to actually make money.

p1necone 6y ago
If your production cost is $235, then you need to make $235 to finance your operation. Anything more is inefficiency that competitors in a healthy market would eat away at.
- mywittyname 6y ago
  Then there must not exist any markets that meet your definition of healthy, because basically every mature market works like I described. It's the most efficient strategy for minimizing costs and maximizing profits. A fundamental principal of business is that a successful one needs to earn a profit. And that profit needs to be high enough to continue operation.
  - p1necone 6y ago
    Indeed there are no theoretically perfect free markets. I'm just arguing that Intel is getting away with a lot more than they would if they had competition more like other businesses; as opposed to the current situation where they only have to compete against AMD, and own enough patents between the two of them that it's basically impossible for new competitors to enter the market. No business needs to earn a profit. By definition profit is surplus to operating costs (and I include a reasonable emergency fund in the category of "operating costs").