DRAM Price Fixing

AEton writes "There's an interesting article up at Newsforge, an OSDN sibling site, about price fixing in the DRAM market. According to Melanie Hollands, a technology analyst, market consolidation and uncertain prices have contributed to subtle cooperation between the major DRAM "competitors" to keep prices high. While she finds little "hard evidence of collusion", there are strong circumstantial trends which last year sparked a secretive Department of Justice antitrust inquiry." Allegations of this have been floating around for a while - heck, you can even join the suit.

Comments

One word: Sumitomo

[BenJeremy]

Way back... a plastics manufacturer had the only plant currently set up to produce the epoxy resin used in most plast ICs.

RAM prices tripled overnight.

No other chips raised in price, and the epoxy, still priced around US$5-US$6 a pound, had a 6 month stockpile sitting at the site. All of the RAM manufacturers also had 6 month stockpiles of the stuff.

Plants in the US and Japan could have bene brought online in months, and Sumitomo had their plant back online within 6 months.

RAM sellers suck. I don't know where the exact problem is, but it's treated as a commodity, and it's wrong.

Re:One word: Sumitomo

[Quixote]

IIRC there was a fire at the Sumitomo plant. Just like the stock market (anyone remember the late 90s? I thought so), there's a lot of speculation that goes on in this market. When people heard of the fire, they started hoarding chips, anticipating a shortfall later; this lead to some appearance of shortage and hence higher prices; which led to more hoarding; which led to more shortage; and so on.

Re:One word: Sumitomo

[cornice]

RAM sellers suck. I don't know where the exact problem is, but it's treated as a commodity, and it's wrong.

In business, "Commodity" typically means an item that is not differentiated from others and sold purely for what it is, without regard for who made it. Price is the only thing that matters when buying a commodity and only the producers that can sell for the lowest price survive. It's typically considered a bad thing when you let your product become so plain that it's considered a commodity. Did you meant to say commodity because that would typically be a good thing for consumers?

Dumb price fixing

[Anonymous Coward]

Considering the DRAM manufacturers are typically losing money on every chip they sell, this would have to be pretty bad collusion between the major players.

Whichever companies outlast the others and able to secure enough financing to pay for the next major technology node will be able to set whatever price they want - the profit margin is already so low (negative!) that no one will want to become a competitor.

IBM was pretty smart to get out of that business years ago.

you can even join the suit

[Anonymous Coward]

"While she finds little "hard evidence of collusion", there are strong circumstantial trends which last year sparked a secretive Department of Justice antitrust inquiry." Allegations of this have been floating around for a while - heck, you can even join the suit."

Hey, who needs evidence!! "It was HIM" That's all the evidence I need!

So lynch mobs are ok if they go for large companies? How peculiar!

Get some proof, or fuck off.

Re:you can even join the suit

[TamMan2000]

Hey, who needs evidence!! "It was HIM" That's all the evidence I need!

Worked for Iraq...

Howto - Legalized Price Fixing

[snatchitup]

It's actually a stupid law. Anti-price fixing that is.

In fact, the most important commodity in America is readily purchased from a price-fixing cartel (aka OPEC).

Here's the howto on legalized price-fixing in America.

Monday... from the Wall Street Journal, "AT&T announces a 4.3% price increase in consumer long distance rates across the board."

Tuesday... from the NY Times, "MCI announces a 4.35% price increase in consumer long distance rates..."

(Result: A successful price fixing.)

Or it could go like this....
Monday... WSJ Reports "AT&T announces a 6% increase in consumer l.d. rates.

Tuesday... WSJ Report "MCI announces a 3% rate hike."

Wednesday... "WSJ Reports "AT&T announces a 50% decrease in a previously announces rate hike due to customer complaints..."

(Result: A successful price fixing in two stages.)

Shit happens man.

Re:Howto - Legalized Price Fixing

[snatchitup]

In the case of oil, OPEC is a single country in a market where the US buys from other producers as well

What you say?????

And oh by the way what you didn't see from my example was that. AT&T announces a price hike, and since others didn't follow suit, it adjusts it accordingly. Basically, this is Public Price Fixing. It's pricing-fixing in the open. It takes a few days/weeks to complete. But it still is collusion, under the guise of public disclusure. AT&T went to the public before it went to MCI. But, in the end, the result is the same as if they had gone behind closed doors and announced the price hike.

The reason the price-fixing laws are stupid is simple. Monopolies are not immune to the law of supply and demand. Back when AT&T was the monopoly, people simply made fewer long distance phone calls. An l.d. call was a major family event for some. As the price fell, usage increased.

The "maximum profit" point where supply curven meets the demand curve is the same whether Monopoly, Oligopoly, etc.

In the case of memory. Cheaper memory means in the long term, developers will develop applications that make use of tons of RAM on each machine. Temporarily prices may spike, but long term, they will go towards the maximum profitability point on the supply/demand curve. If DRAM is too expensive, PC's will start using less (relatively speaking).

If DRAM is too cheap, some companies will leave the business.

More exaples of Price Fixing... Simple. Oil (OPEC). Gasoline. Lumber. Health Care (in a major way). Beer. Eggs. Automobiles (Well, the govt. is a player here, with Tariffs, so that foreign auto's don't get too cheap.)

Re:Howto - Legalized Price Fixing

[Cyno]

Or look at the RIAA and MPAA.

Many media companies have formed into these happy associations that just happen to set the price of CDs or DVDs around $15.

We all know the costs in making and distributing a 5" plastic disc are less than $1 and songs that have been off the charts for a couple years won't produce a profit. But that doesn't stop them from "price fixing".

The problem is not the artists, the developers, the manufacturers. The problem is that capitalism is a broken system. Its a system designed to allow people to screw eachother over. Shit happens all the time, everywhere. The whole point of capitalism is to make as much money as you can, which means by the end of your life you might end up with a lot of money but everyone else would have had to slave away their whole lives while you screwed them over to provide you with your valuable possessions.

These things. These items we place so much economic value in. Are they really that important to our lives? So important that we would sell our kids into a lifetime of slavery just to prove our point that Capitalists are wealthy or that money doesn't grow on trees?

But money does grow on trees, like every other paper product we produce.

what sucks is globalization

[muyuubyou]

When a very limited number of companies control the whole world's market, things like this happen.

The user is helpless when they have so much control. Reached this point, competition is not enough and the market doesn't regulate itself at all. This is when free market means free for big corporations to abuse and screw the rest.

Maybe another reason

[Technician]

I know it looks funny, but think about the market dynamics. Most chip manufactures can change photomasks and either make DRAM, Flash RAM, Cell Phone chips, Network Chips, etc. The market has some fluctiuations. When the price is up, management shifts to produce what is profitable. When the market is down, they sell off inventory and tool for other chips. I know Intel closed a flash plant when flash prices fell. They started again when Cell Phones needed lots more memory driving the price back up. The market swings. The manufactures can't instantly deliver. It takes time to react to the market. Starting a new product line takes several months from new raw wafers to finished deliverable components. It's easy to flood the market if you don't know your compeditors are also trying to fill 100% of a shortage. A shortage of 500,000 units could quickly become a glut of 1,500,000 units as 3 manufactures come on line to supply the shortage. They all get stung with the rapid price drop while trying to recover the manufacturing costs. The margins are quite thin most of the time in the DRAM market. Bumps in demand do catch the suppliers off guard.

DRAM is veeeery cheap

[Anonymous Coward]

I don't understand the problem. 1GB (2x512MB) of PC2700 DDR memory can be bought under $100.

DoJ should investigate OS or Office suite price fixing instead. These are horribly overpriced.

Taiwan Mafia

[it0]

I always found it suspicious that everytime RAM prices came down, the factory was on fire, blown away by tornado, or was hit by an earthquake. It was like they really had a bad case of Sim City.

DRAM OPEC

[moojin]

i've always wondered why the major memory chip producers did not create an OPEC type consortium for DRAM. they would be able to control the price of ram chips and hopefully hold it at a level that would be cheap enough to ensure brisk sales, while ensuring that they would make enough profit to a) keep their workers employeed all of the time, b) keep their production lines running at a certain capacity, c) be able to invest in memory chip technology.

the DRAM constortium could raise the prices on memory chips to a point where consumers would find it too expensive to buy chips, but a) the smaller manufacturers could offer cheaper products b) like OPEFC the consortium does not want to alienate its consumers through higher prices.

on another note, "Regarding the latter "conspiracy", the three main culprits appear to be Samsung and Hynix, both of Korea; and Taiwan's Nanya." though these three companies are geographically more closely located than the other major companies, it does not necessarily mean that they would want to devise a plan to price fix. don't airlines in the U.S. price fix also?