Science & Tech

Ever Thought Why RAM Comes So Expensive, How Price Of RAM Is Fixed?

Ever Thought Why RAM Comes So Expensive, How Price Of RAM Is Fixed? Posted On
Posted By Parveen

You may already know that RAM is the inseparable and most important part of any electronic equipment which processes data of any kind. The pricing of RAM is sky-rocketing even though they are quite common. But why are they made so expensive? Well, it’s all the game of leverage. You would be amazed to know that there are only three RAM manufacturers in the entire world – Samsung, SK Hynix, and Micron. All RAM on the market, regardless of branding, whether that be G. Skill, Corsair, Team Group, Kingston, Crucial, etc, ALL of them use RAM from one of those three manufacturers (Samsung, SK Hynix, Micron), just rebranded by the company/distributor selling it, with their name on the packaging and marketing materials and with their own custom heatsinks and labeling slapped on the sticks.

Ever Thought Why RAM Comes So Expensive, How Price Of RAM Is Fixed?

Because there are only three RAM manufacturers, it’s easy for them to price fix. This basically means that they secretly agree not to compete. Rather than undercutting each other, competing as usual, and driving prices down, they’ve arrived at the logical conclusion that they’d all be better off collectively if they cooperated to keep prices high. Normally, if one of the manufacturers saw the others selling product at exorbitantly high prices, they would undercut those prices to attract all the consumers (in this case the above listed companies who purchase RAM from the OEM’s, as well as phone, tablet, laptop, and desktop manufacturers) to themselves while still driving a profit. In a price-fixing scheme, the manufacturer instead chooses to list their own product at those same prices rather than undercutting, even though undercutting would massively boost their own sales and therefore profits so long as the other two manufacturers didn’t adjust their pricing to compensate. Under normal circumstances, the other two would see this and lower their own prices to undercut the first manufacturer, and the first would respond in kind, and this would continue until prices dropped to the lowest point at which the manufacturers could still make a reasonable profit. Instead, they all conspire to keep prices high and avoid undercutting each other: on the contrary, if one of the manufacturers RAISES their prices, the other two will see that and raise their own prices as well to match, all while spouting nonsense, lies, and excuses about “supply shortages”, “too much demand from XYZ”, “not enough fabrication facilities”, etc etc.

By doing this, they ALL increase their profit margins several times over, and it is incredibly hard to stop them, since as long as there is there’s no hard evidence of collusion between the companies (a paper trail, communications logs, records, internal memos, emails, tapes of phone calls, etc), it is very difficult to prove that they’re deliberately doing this and it isn’t a genuine supply/demand issue. Even with sufficient evidence, getting all the legal framework in place to prepare a lawsuit against three massive international companies alleging a multi-billion dollar conspiracy is incredibly expensive and resource-intensive, both in terms of manpower, man-hours, money, and talent required to sufficiently take on each of those multi-billion dollar companies’ multi-billion dollar legal teams with their own wealth of talent, money, and manpower to work with. Even with plenty of evidence, sufficient resources, and the manpower to make it happen, a legal operation of this scale would need a minimum of a year if not two or even three years to get everything into place, play everything out, and get things resolved to punish the manufacturers and get prices back in line with reality.

What makes this whole situation even more difficult to resolve is that as of right now, the three manufacturers are engaging in “unspoken” price fixing/collusion, in which, rather than actively communicating with each other and coming to a written or spoken agreement to not compete, they have all arrived at the same conclusion individually/internally, possibly without even a paper trail, and are silently engaging in the behavior without acknowledging it even internally or toward each other, making it even more difficult to prove that this is really what’s happening rather than normal supply/demand laws.

Even so, this isn’t all some crazy crackhead conspiracy theory. These three companies have had a stranglehold on the NAND flash market since forever and a half and they’ve been brought to court and found guilty on price-fixing charges in the RAM market literally a half dozen times. This has happened over and over again in the past. Each time, they eventually get brought to court, found guilty, forced to pay the requisite fines, and ordered to get their acts together and start competing and pricing things sanely again. But each time, they eventually start up with the price fixing again. Why? Because that’s how insanely profitable it is. So profitable that even if they each get fined a couple hundred million or even a couple billion dollars apiece, on top of the legal fees, they’ll still have ran away with a massive net profit from the time they spent playing the game with inflated prices, especially since there’s always that one to two year minimum processing time in the legal system for a suit of this scale, which means even after all the evidence and such is assembled, it still takes a long time for the nail to descend on their coffin and stop them from continuing to profit from their practices. In other words, even if they are found out almost immediately and make it blatantly obvious, they still end up raking in piles of cash while the legal proceedings slowly crawl their way through the system.

This practice is well-documented and they have been convicted for it numerous times. This time is no different. They’re just being more careful about it. As of right now, there are two major suits that I know of currently in the process of being brought against them for this current round of price fixing: one from some US law firm that’s taken it upon themselves to start up a class-action lawsuit signed by anyone and everyone who’s bought a phone, tablet, laptop, desktop, or any other device with RAM in the past two years or so (you can sign it yourself if you like, and if they win the suit, you’ll get something like $20 in the mail as compensation), and another, potentially much larger one, in which the Chinese government is investigating the three companies in question for suspicion of price-fixing/non-competition. Those investigations have been going on for around three or four months now if memory serves (no pun intended). Prices haven’t dropped a dime since then, but that isn’t surprising since if prices suddenly dropped as soon as they were under investigation, that would essentially be an admission of guilt that they were artificially keeping prices high prior to the investigation’s commencement.

One other thing that complicates matters and obfuscates the truth further is that there may actually be some grain of truth to their excuses about supply and demand. Their story is that demand from previously comparatively low-demand markets like smartphones, tablets, and laptops – ESPECIALLY smartphones – has skyrocketed in the last few years, with both the number of smartphones manufactured per year and the amount of RAM required per smartphone both ballooning to unprecedented numbers, resulting in RAM manufacturers being hit with insane amounts of demand they weren’t prepared for, and not being able to scale up supply to properly compensate for it. Like I said, there is actually some truth to this story – RAM fabs (manufacturing facilities) are incredibly high-cost and long-term investments for RAM manufacturers, easily in the multiple billions of dollars per fabrication facility in cost and typically takes years to set up/build at a minimum, so even if RAM manufacturers had immediately started making new fabs at breakneck speeds the moment they were hit with this increased demand, those fabs wouldn’t have started coming online and contributing to the supply until right around now, if not even later realistically. Unfortunately, they didn’t, because those sorts of endeavors are, as I said, extremely high-cost, and therefore high-risk, and they didn’t know whether this surge in demand would last, so plans for new fabs to be erected didn’t start cropping up until earlier this year, and those fabs won’t be around until at least late 2020 at the earliest, which they’re using as an excuse to say that consumers shouldn’t expect lower prices until at least that time.

Even if those stories from the snake’s mouth are true, they aren’t the whole truth. Even with the estimated increase in demand (“estimated” since no one but the RAM manufacturers themselves know the true figures in terms of memory sales toward the smartphone sector, and they have no obligation to disclose such information publicly, so the best we can do to get a more realistic estimate is extrapolate from the number of devices sold per year and the average amount of RAM per device and then scale the expected price of RAM per GB up or down per year accordingly beginning with pre-fixing figures), prices would never have skyrocketed to the level they’re at today without a good deal of artificial inflation on the part of the manufacturers themselves, who have taken advantage of this situation as subterfuge to obfuscate their own schemes. In essence, they’re using the (actually legitimate) massive increase in demand from mobile devices as a smokescreen to add an extra 40%-50% markup to all their price tags while proclaiming that it’s all because of the smartphone demand when in reality, that’s only a smaller part of the reason for the sharply upticked price trends in comparison to their collusion.

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