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The alternative is to have shortages. If there is demand for N chips at $X price, but you only have N/2 chips, then half the people aren't going to be able to

The alternative is to have shortages. If there is demand for N chips at $X price, but you only have N/2 chips, then half the people aren't going to be able to buy them. The people who really need the chips, and would be willing to pay a lot more than $X for them, will be competing with people who are only willing to pay $X for them. You will end up getting scalping and shortages and hoarding. Since people know that there are enough people willing to pay a higher price, everyone will try to buy them at $X, even if they don't need them at all. Just buy them at $X, and immediately sell it to one of those companies willing to pay a lot more. The market is extremely inefficient... since the manufacturer isn't charging enough, you get way too many people trying to buy them from the manufacturer. So you find the price where the demand is N/2 chips, and everyone who is willing to pay that much will get one, and there is no profit for scalpers so the only people who will buy them will be actual companies that need them.

docjay 2mo ago
If demand outpaces supply then there’s a shortage no matter what you do. I don’t believe scalpers are an issue in B2B; these aren’t concert tickets being sold to the general public. It’s clear you grasp the economic theory as it’s taught, but my comment was meant for you to question it. If someone is hungry you can charge more for food. The market allows and encourages it. But don’t mistake that for “willingness” and don’t mistake raising the prices purely to get extra money from the exchange as some inevitable law of the universe. You’re welcome to love the concept, but don’t whitewash it.
- crote 2mo ago
  > If demand outpaces supply then there’s a shortage no matter what you do. Demand is elastic. If the price of potatoes rises to $1000 / kg most people will switch to using pasta or rice for their dinner instead. There might be a shortage of potatoes at $1 / kg, but not at $1000 / kg. If my 7-year-old computer were to die tomorrow I would've normally replace the entire thing. It has had a good life, the newer generations of hardware are a decent bunch faster, and it would be nice to get some additional features. With current RAM prices? No way I can afford to upgrade to DDR5, I'll have to get a replacement AM4 motherboard / CPU to fix it. > I don’t believe scalpers are an issue in B2B They are called "speculators". DRAM is a commodity and is traded no different from, say, potatoes. It's why there are companies like DRAMeXchange. DRAM module assemblers like Kingston, G.Skill, and Corsair will buy chips from whoever gives them the best deal. Similarly, anyone assembling hardware using DRAM will have stockpiled it when the AI boom became noticeable - with some almost certainly selling it off now that it has become too valuable to use for cheaper products.
  - jonhohle 2mo ago
    I just did exactly that. I had an old i7 with 64GB of DDR4 that I bought when it was cheap. DDR5 was so expensive I just bought an AM4 and moved the RAM over. My MacBook is showing its age, though. Hearing that 2027 wont be any better makes me hopeful all the vibe coders can ask for memory efficient implementations to stretch existing hardware a little further.
    - zenoprax 2mo ago
      > Hearing that 2027 wont be any better makes me hopeful all the vibe coders can ask for memory efficient implementations to stretch existing hardware a little further. I've been thinking about this too. After being forced to work off a laptop with 6GB of RAM for a few weeks it made me appreciate my 32GB at home where I run Electron apps with abandon. It still seems crazy to me that we've normalized running an entire browser for a single program just because the UI frameworks are too hard/unfamiliar to the majority of programmers.
      - andrekandre 2mo ago
        > just because the UI frameworks are too hard/unfamiliar i'm not sure if thats the biggest issue. working at a few large companies that had to support multiple platforms, the management was always looking for ways to deduplicate work with things like flutter, kmp etc; they just want one codebase to manage and qa because 2 or more gets to be hard for them to handle (hiring is also easier) i take it even with ai companies will still do this, whith exhibit a being the electron-based codex app from openai...
  - tsimionescu 2mo ago
    > Demand is elastic. If the price of potatoes rises to $1000 / kg most people will switch to using pasta or rice for their dinner instead. There might be a shortage of potatoes at $1 / kg, but not at $1000 / kg. If potatoes suddenly became $1000/kg, everyone would agree that there is a shortage of potatoes. While sure, people won't starve and will eat other things, it doesn't change the basic fact that there aren't enough potatoes. The situation with RAM is even worse. If I'm trying to build and sell computing devices, I need RAM. Whether no one is willing to sell RAM at all, or whether they'll sell it only for 10x yesteryears's price, it doesn't make much difference to me, I'm still going out of business. Sure, that will then make demand technically go down, but not the shortage.
- tjwebbnorfolk 2mo ago
  When demand exceeds supply you have two options: make the people who value those goods the highest compete with each other to pay the natural market price for them, or have a lottery with price ceilings. Price ceilings create inefficiency, and they create black markets. In a lottery, the goods are misallocated to a bunch of people who aren't getting the most value out of the goods, creating economic inefficiency. A bunch of GPUs would be sitting in warehouses waiting to be resold (either when the price goes up, or in the inevitable black market), or in my basement screwing around with them, instead of being deployed in a way that the most people can benefit from creating maximum economic value from their deployment. Your gaming PC isn't as economically valuable as JPMorgan using AI for fraud detection, for example. Moreover, if you are appointed god and force everyone to sell GPUs at one dollar just because you want cheap GPUs, then this is the last batch of GPUs that will ever be produced and you'll have a shortage until the end ot time.
  - repsilat 2mo ago
    > you have two options There are many other ways to allocate capacity. For example, you could give preferential access to customers who sign long-term purchase commitments, or some other favourable terms. These other methods might correlate well with value to the seller and might be easier for buyers to pay. Other methods could be "allocate to customers that you want to maintain a good relationship with." I suspect HBM is not allocated either with pure auctions or by lottery.
  - tsimionescu 2mo ago
    Not that I'm advocating for this with RAM, but another tried and true solution for necessary goods with limited supply is rationing. This is what got everyone through WW2, for example.
    - tjwebbnorfolk 2mo ago
      Rationing works when there are alternative goods available. Spam instead of steak, in your example. One of the most difficult shortages during WW2 was rubber, because there was no (known, at the time) comparable alternative. With GPUs, rationing would have the same effect as a lottery -- you either get to run AI, or you don't.
spoonjim 2mo ago
> The people who really need the chips, and would be willing to pay a lot more than $X for them, will be competing with people who are only willing to pay $X for them. If there was an Ozempic shortage tomorrow, it's not the morbidly obese people who "really need" it who would be getting it, it would be the Hollywood A-listers who need to drop 4 pounds for their next movie, or the billionaire who's feeling a little tubby. Price is a good allocation system, but it's important to recognize that it's not a mechanism for attaining some kind of ethically "best" allocation.
franga2000 2mo ago
> The people who really need the chips, and would be willing to pay a lot more than $X for them The people who really want the chips, and are able to pay a lot more than $X for them. Please can y'all stop pretending that raising prices allocates resources by need and willingness to pay? With the level of spending power imbalance, the person who wants something and has too much money will ALWAYS squeeze out the people who actually need something and have less money. Always. No other factors are considered by the market.
- wisty 2mo ago
  The cure for high prices is high prices. Selling out creates scalpers and sometimes even a speculative bubble. High prices means producers invest in new fabs (though it may take time).
  - Forgeties79 2mo ago
    >though it may take time That’s what makes this so distinct so it probably shouldn’t just be some offhand parenthetical at the end. It’s incredibly expensive, it takes a long time, and it’s incredibly specialized. You can absolutely forget the idea of a “disruptive startup” entering that space too.
    - spockz 2mo ago
      Maybe not a traditional disruptive startup but isn’t CXMT from China stepping in to build all those fabs? Previously investing in that space didn’t make a lot of sense. Now that there are a lot of consumers willing to buy something they can build and sell at a price between the previous low point and the current high point. The only tricky thing is that the current shortages need to continue until the fans are well up and running. Even if the supply side suddenly crashes due to the AI bubble bursting or someone inventing a way to only need 1/10 of RAM, I can imagine them keeping the prices relatively high.
      - Forgeties79 2mo ago
inigyou 2mo ago
Can we stop abusing the technical economic definition of "shortage"? In economics a shortage means the price is too low for the demand quantity, but in everyday usage a shortage means the supply quantity is too low. With the basic supply/demand curve, "shortage" and "discount" are synonyms and I know which word makes more sense to describe the scenario.
- abanana 2mo ago
  What? There's no abuse going on here, because (1) the technical economic definition of "shortage" is simply demand exceeding supply, exactly the same as the everyday meaning; and (2) even if the meanings were different, technical or domain-specific-jargon meanings of words don't trump everyday-use meanings, unless you're in a technical meeting of people within that narrow domain.
  - inigyou 2mo ago
    Economist definition: demand at this price level exceeds supply at this price level Normal people definition: there isn't enough to go around Economist corollary: there is enough to go around, people are just buying more than they need because the price is low Can you tell the difference between the supermarket put potatoes on sale and sold out, and there are no potatoes because of the potato blight?
majormajor 2mo ago
What's the functional difference between "I can't afford it" and "I can't get it due to a shortage"? (Other than a convenient-for-some/inconvenient-for-others "let the richest get the stuff first!" shift, and just pretending that we are all fully independent actors instead of members of a community?)
- derektank 2mo ago
  The supplier receives more money in the first of those scenarios, which (a) can be used to expand its own supply and (b) creates a demand signal for competitors to attempt to clear the barriers to entering the market.
- cortesoft 2mo ago
  People seem to be thinking of "affording" as merely a property of having more cash. It is more than that, it is about the potential RETURN on the investment. The businesses that can 'afford' to pay more are the ones who are going to put the chips to the most valuable use (at least in the macro sense). A company might have plenty of money, but won't pay above a certain amount for the chips because the business case they are using them for is not valuable enough. Raising prices is a way to filter for most valuable use.
burnte 2mo ago
> The alternative is to have shortages. This is a myth. The volume of inventory remains the same regardless of the price. When demand is higher than supply you have shortages regardless of price simply because you have unmet demand. If you raise prices, that demand is still unmet, you're now filtering that demand by who is willing to pay more so you maximize your own value and profit. Not even rationing prevents shortages because, again, the demand exists. Rationing simply tries to spread the supply around so more people get some rather than none. Price hikes instead say "who wants it badly enough?"
- cortesoft 2mo ago
  You aren't just filtering by who is willing to pay more, because willing to pay more is also indicative of how valuable that inventory is to the people buying it. All demand is not equal. Some companies have very valuable business they can do with the inventory while other businesses have less valuable uses for it. The more valuable uses are willing to pay more, so higher prices means the most valuable uses get filled first.
- mixedCase 2mo ago
  This ignores that whenever the margins for an industry increase, this interests new investments in it, and new players to come aboard, as well as new product lines that can satisfy the demand in a new way that people either didn't consider or rejected before due to being outclassed by the formerly cheaper alternative. Rationing does not stimulate investment this way.
  - burnte 2mo ago
    I never said rationing does anything else except spread around inventory to many customers.

docjay 2mo ago

If demand outpaces supply then there’s a shortage no matter what you do. I don’t believe scalpers are an issue in B2B; these aren’t concert tickets being sold to the general public. It’s clear you grasp the economic theory as it’s taught, but my comment was meant for you to question it. If someone is hungry you can charge more for food. The market allows and encourages it. But don’t mistake that for “willingness” and don’t mistake raising the prices purely to get extra money from the exchange as some inevitable law of the universe. You’re welcome to love the concept, but don’t whitewash it.

crote 2mo ago
> If demand outpaces supply then there’s a shortage no matter what you do. Demand is elastic. If the price of potatoes rises to $1000 / kg most people will switch to using pasta or rice for their dinner instead. There might be a shortage of potatoes at $1 / kg, but not at $1000 / kg. If my 7-year-old computer were to die tomorrow I would've normally replace the entire thing. It has had a good life, the newer generations of hardware are a decent bunch faster, and it would be nice to get some additional features. With current RAM prices? No way I can afford to upgrade to DDR5, I'll have to get a replacement AM4 motherboard / CPU to fix it. > I don’t believe scalpers are an issue in B2B They are called "speculators". DRAM is a commodity and is traded no different from, say, potatoes. It's why there are companies like DRAMeXchange. DRAM module assemblers like Kingston, G.Skill, and Corsair will buy chips from whoever gives them the best deal. Similarly, anyone assembling hardware using DRAM will have stockpiled it when the AI boom became noticeable - with some almost certainly selling it off now that it has become too valuable to use for cheaper products.
- jonhohle 2mo ago
  I just did exactly that. I had an old i7 with 64GB of DDR4 that I bought when it was cheap. DDR5 was so expensive I just bought an AM4 and moved the RAM over. My MacBook is showing its age, though. Hearing that 2027 wont be any better makes me hopeful all the vibe coders can ask for memory efficient implementations to stretch existing hardware a little further.
  - zenoprax 2mo ago
    > Hearing that 2027 wont be any better makes me hopeful all the vibe coders can ask for memory efficient implementations to stretch existing hardware a little further. I've been thinking about this too. After being forced to work off a laptop with 6GB of RAM for a few weeks it made me appreciate my 32GB at home where I run Electron apps with abandon. It still seems crazy to me that we've normalized running an entire browser for a single program just because the UI frameworks are too hard/unfamiliar to the majority of programmers.
    - andrekandre 2mo ago
      > just because the UI frameworks are too hard/unfamiliar i'm not sure if thats the biggest issue. working at a few large companies that had to support multiple platforms, the management was always looking for ways to deduplicate work with things like flutter, kmp etc; they just want one codebase to manage and qa because 2 or more gets to be hard for them to handle (hiring is also easier) i take it even with ai companies will still do this, whith exhibit a being the electron-based codex app from openai...
- tsimionescu 2mo ago
  > Demand is elastic. If the price of potatoes rises to $1000 / kg most people will switch to using pasta or rice for their dinner instead. There might be a shortage of potatoes at $1 / kg, but not at $1000 / kg. If potatoes suddenly became $1000/kg, everyone would agree that there is a shortage of potatoes. While sure, people won't starve and will eat other things, it doesn't change the basic fact that there aren't enough potatoes. The situation with RAM is even worse. If I'm trying to build and sell computing devices, I need RAM. Whether no one is willing to sell RAM at all, or whether they'll sell it only for 10x yesteryears's price, it doesn't make much difference to me, I'm still going out of business. Sure, that will then make demand technically go down, but not the shortage.
tjwebbnorfolk 2mo ago
When demand exceeds supply you have two options: make the people who value those goods the highest compete with each other to pay the natural market price for them, or have a lottery with price ceilings. Price ceilings create inefficiency, and they create black markets. In a lottery, the goods are misallocated to a bunch of people who aren't getting the most value out of the goods, creating economic inefficiency. A bunch of GPUs would be sitting in warehouses waiting to be resold (either when the price goes up, or in the inevitable black market), or in my basement screwing around with them, instead of being deployed in a way that the most people can benefit from creating maximum economic value from their deployment. Your gaming PC isn't as economically valuable as JPMorgan using AI for fraud detection, for example. Moreover, if you are appointed god and force everyone to sell GPUs at one dollar just because you want cheap GPUs, then this is the last batch of GPUs that will ever be produced and you'll have a shortage until the end ot time.
- repsilat 2mo ago
  > you have two options There are many other ways to allocate capacity. For example, you could give preferential access to customers who sign long-term purchase commitments, or some other favourable terms. These other methods might correlate well with value to the seller and might be easier for buyers to pay. Other methods could be "allocate to customers that you want to maintain a good relationship with." I suspect HBM is not allocated either with pure auctions or by lottery.
- tsimionescu 2mo ago
  Not that I'm advocating for this with RAM, but another tried and true solution for necessary goods with limited supply is rationing. This is what got everyone through WW2, for example.
  - tjwebbnorfolk 2mo ago
    Rationing works when there are alternative goods available. Spam instead of steak, in your example. One of the most difficult shortages during WW2 was rubber, because there was no (known, at the time) comparable alternative. With GPUs, rationing would have the same effect as a lottery -- you either get to run AI, or you don't.

spoonjim 2mo ago

> The people who really need the chips, and would be willing to pay a lot more than $X for them, will be competing with people who are only willing to pay $X for them. If there was an Ozempic shortage tomorrow, it's not the morbidly obese people who "really need" it who would be getting it, it would be the Hollywood A-listers who need to drop 4 pounds for their next movie, or the billionaire who's feeling a little tubby. Price is a good allocation system, but it's important to recognize that it's not a mechanism for attaining some kind of ethically "best" allocation.

franga2000 2mo ago

> The people who really need the chips, and would be willing to pay a lot more than $X for them The people who really want the chips, and are able to pay a lot more than $X for them. Please can y'all stop pretending that raising prices allocates resources by need and willingness to pay? With the level of spending power imbalance, the person who wants something and has too much money will ALWAYS squeeze out the people who actually need something and have less money. Always. No other factors are considered by the market.

wisty 2mo ago
The cure for high prices is high prices. Selling out creates scalpers and sometimes even a speculative bubble. High prices means producers invest in new fabs (though it may take time).
- Forgeties79 2mo ago
  >though it may take time That’s what makes this so distinct so it probably shouldn’t just be some offhand parenthetical at the end. It’s incredibly expensive, it takes a long time, and it’s incredibly specialized. You can absolutely forget the idea of a “disruptive startup” entering that space too.
  - spockz 2mo ago
    Maybe not a traditional disruptive startup but isn’t CXMT from China stepping in to build all those fabs? Previously investing in that space didn’t make a lot of sense. Now that there are a lot of consumers willing to buy something they can build and sell at a price between the previous low point and the current high point. The only tricky thing is that the current shortages need to continue until the fans are well up and running. Even if the supply side suddenly crashes due to the AI bubble bursting or someone inventing a way to only need 1/10 of RAM, I can imagine them keeping the prices relatively high.
    - Forgeties79 2mo ago

inigyou 2mo ago

Can we stop abusing the technical economic definition of "shortage"? In economics a shortage means the price is too low for the demand quantity, but in everyday usage a shortage means the supply quantity is too low. With the basic supply/demand curve, "shortage" and "discount" are synonyms and I know which word makes more sense to describe the scenario.

abanana 2mo ago
What? There's no abuse going on here, because (1) the technical economic definition of "shortage" is simply demand exceeding supply, exactly the same as the everyday meaning; and (2) even if the meanings were different, technical or domain-specific-jargon meanings of words don't trump everyday-use meanings, unless you're in a technical meeting of people within that narrow domain.
- inigyou 2mo ago
  Economist definition: demand at this price level exceeds supply at this price level Normal people definition: there isn't enough to go around Economist corollary: there is enough to go around, people are just buying more than they need because the price is low Can you tell the difference between the supermarket put potatoes on sale and sold out, and there are no potatoes because of the potato blight?

majormajor 2mo ago

What's the functional difference between "I can't afford it" and "I can't get it due to a shortage"? (Other than a convenient-for-some/inconvenient-for-others "let the richest get the stuff first!" shift, and just pretending that we are all fully independent actors instead of members of a community?)

derektank 2mo ago
The supplier receives more money in the first of those scenarios, which (a) can be used to expand its own supply and (b) creates a demand signal for competitors to attempt to clear the barriers to entering the market.
cortesoft 2mo ago
People seem to be thinking of "affording" as merely a property of having more cash. It is more than that, it is about the potential RETURN on the investment. The businesses that can 'afford' to pay more are the ones who are going to put the chips to the most valuable use (at least in the macro sense). A company might have plenty of money, but won't pay above a certain amount for the chips because the business case they are using them for is not valuable enough. Raising prices is a way to filter for most valuable use.

burnte 2mo ago

> The alternative is to have shortages. This is a myth. The volume of inventory remains the same regardless of the price. When demand is higher than supply you have shortages regardless of price simply because you have unmet demand. If you raise prices, that demand is still unmet, you're now filtering that demand by who is willing to pay more so you maximize your own value and profit. Not even rationing prevents shortages because, again, the demand exists. Rationing simply tries to spread the supply around so more people get some rather than none. Price hikes instead say "who wants it badly enough?"

cortesoft 2mo ago
You aren't just filtering by who is willing to pay more, because willing to pay more is also indicative of how valuable that inventory is to the people buying it. All demand is not equal. Some companies have very valuable business they can do with the inventory while other businesses have less valuable uses for it. The more valuable uses are willing to pay more, so higher prices means the most valuable uses get filled first.
mixedCase 2mo ago
This ignores that whenever the margins for an industry increase, this interests new investments in it, and new players to come aboard, as well as new product lines that can satisfy the demand in a new way that people either didn't consider or rejected before due to being outclassed by the formerly cheaper alternative. Rationing does not stimulate investment this way.
- burnte 2mo ago
  I never said rationing does anything else except spread around inventory to many customers.