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Hard Drive Shortage Relief Coming In Q1 2012
MojoKid writes "According to new reports [note: source article at DigiTimes], global HDD production capacity is getting ready to increase to 140-145 million units in the first quarter of 2012, or about 80 percent of where it was prior to when the floods hit Thailand manufacturing plants. HDD production was sitting around 175 million units in the third quarter of 2011 before the floods, after which time it quickly dropped to 120-125 million units. Since then, there's been a concerted effort to restore operations to pre-flood levels."
Most end users never noticed. People that needed the storage paid the higher price. People that didn't actually need it just held off until prices went down.
You're thinking too short-term. Say the government forced manufacturers to keep HDDs at their original price and sell them via lottery. The 50 HDDs would sell out. The manufacturers would look at the how much money they're making per HDD, and conclude they don't provide enough profit for them to repair their factories. Consequently, next month when the next batch arrives, there are 50 HDDs again, and 150 people (the 50 who didn't get one last time + 100 new people) wanting to buy them.
Your attempt at fair HDD distribution means there's a constant shortage. Then one day, some of the poorer people who got a HDD suddenly realizes that he can resell it for a lot more than they paid for it. A black market appears. Lots of other people who don't need HDDs realize the price differential between your fixed price and the true market price provides an arbitrage opportunity, and they enter the lottery for HDDs. Now you have 50 HDDs being produced per month, and 5000 people wanting to buy them. So of the 50 HDDs you're selling via lottery, only about 5 end up in the hands of people who actually need a HDD, the other 45 go to resellers flipping them on the black market for a profit. So most of the people who need HDDs are actually paying the higher price despite your price fixing, and the extra money is going to flippers instead of the manufacturers so there's no incentive for them to fix your real problem - a shortage of HDDs.
OTOH, if you allow the market price to increase, it provides the manufacturers the resources and the incentive to repair their factories and increase supply. Other companies who used to make HDDs but scaled it back look at the higher price, and say hey, there's a lot of money to be made, we should start making HDDs again. Next month they make 60 HDDs, and the price creeps down. Next month they make 85 HDDs and the price drops some more. And the next back they make 110 HDDs. The 10 extra means people who didn't get a HDD in previous months gradually get theirs. Eventually everyone who previously wanted a HDD gets one. Next month there are 100 new people who want HDDs.
Now the reverse of the previous situation happens. There are only 100 people who want HDDs, but the manufacturers are still making 110. There's an oversupply. The manufacturers cut their prices below the 100-drive level to try to sell out their drives before their competitors can. The market price now settles at the lowest price the 100th seller is willing to sell for. The extra 10 HDDs carry over to the next month and now there's a 20 drive oversupply, driving the price even lower. Eventually some of the manufacturers see their dropping profit, cry uncle, and scale back production. The manufacture of HDDs stabilizes again at 100 per month, exactly matching demand.
This isn't a system which favors sellers over buyers. It treats both the same. Sellers are at an advantage when there's a shortage. Buyers are at an advantage when there's oversupply (which is the state the HDD industry has been in most of the time - why IBM sold off its storage division to Hitachi, who is now trying to sell it to Western Digital). The price fluctuations are the feedback mechanism which cause manufacturers to produce more or fewer drives in response to demand. Eliminate it and you break the economy.