> extremely rare that the price of an asset will crash due to increased supply
The history of commodities such as crude oil and natural gas are potent counterexamples. For that matter, semiconductors fit the bill as well.
The history of commodities such as crude oil and natural gas are potent counterexamples. For that matter, semiconductors fit the bill as well.
https://www.macrotrends.net/1369/crude-oil-price-history-cha...
The first big crash was at the end of 1985/the beginning of 1986, which Wikipedia says was due to falling demand (e.g. people consuming energy):
https://en.wikipedia.org/wiki/1980s_oil_glut
There was a temporary spike in 1990 after Iraq invaded Kuwait. I guess you could argue that the price went back down because the supply changed.
There was a crash in 1997–1998 that was partially due to increased supply but also due at least in part to the Asian financial crisis. The next big crash was from June 2008 to February 2009, again due to a large financial crisis. There was another crash in June 2015-February 2016 due to a stock market crash in China, and finally we get to the massive crash this year driving futures prices negative, which was of course due to COVID-19 reducing demand for travel.
The big dislocations you cite obscure the fact that demand rose for most of the period, demand was rising. So another way to read the chart is that demand-weighted prices declined most of the time, with occasional spikes. Either way, you can see in the charts the increased supply effect of e.g. fracking being deployed widely in the price response.
One could also look back to 2008 to see the impact of increased supply on pricing of e.g. real estate.
Is it extremely rare for supply to crush prices? Or is it more that we stop thinking about valuable things once they become super cheap commodities?
For example a printing press. To use old tech as an example. The press itself is wildly expensive. So I will have to divide that price across all things I sell using that press. However once the press is paid off my marginal costs are little more than cost of paper, shipping it around, and paying someone to run/fix the press. Computer chips are made of silicon one of the cheaper materials to buy out there. The up front costs of setting up a foundry is akin to buying a printing press. An older tech foundry can still make marginal money as the big cost is already been paid for. Everything after is marginal.
Your argument is with medallions is mostly correct. They had an artificial constraint on an environment. With the artificial constraint they act like assets and not permits. However once a good that was equivalent showed up the value of the asset value did fall. A market will tend towards MR=MC (marginal rev=marginal cost). However in the medallion case the supply was artificially constrained. So a floor was created. This moves the price people are willing to pay up the demand curve instead of lower near the usually lower mr=mc spot. In this case as the population grew but the number of allowed taxis did not the price went up because demand went up but supply did not. Once another good showed up that demand curve changed as less people were willing to pay that amount as well as more supply. This is the madness of economics. The demand curve always changes.
Chips are mostly worthless because there are so many of them and better fab equipment exists and the capex of the machines to make them was paid off decades ago. So their depreciation is very quick (much like cars). Rarity does play into price as well. As some people do like the idea of owning a rare thing.
You also have part of it with your comment here. Assets rarely 'hold' value for a long term. If you do not move the value around your total monetary value will depreciate. The medallion case was an artificial constraint so the value rose because demand remained high enough. Once a new supply came in the real price showed up. Housing can act like this too in artificially constrained environments. Rent control, poor tax structures, poor zoning, etc can all cause this. If you get a situation where the owners work with the gov (medallions and the taxi commission and the cities) they will write laws to artificially constrain growth to limit their asset depreciation. That is usually called regulatory capture.
For these sorts of arguments I like to say 'if everyone suddenly had 1 billion dollars what would you pay for a loaf of bread?'. Most people would say '1-2 dollars'. But what about next week when the company realizes people will pay 1000 dollars for one? Would you still buy it? Would your friends? It usually shows that the demand curve is not static and value is a moving market in and of itself.
Low-end smartphones: Apple’s charging record prices for its new iPhones so I don’t think the availability of low-end smartphones caused any sort of crash in the price of smartphones. Rather, it’s a new market category.
Operating system software: I’m not sure what you’re getting at here. The price of Windows has been relatively stable for decades despite the availability of free alternatives like GNU/Linux. Apple stopped charging separately for its OS and now essentially bundles a subscription into the cost of its hardware. I don’t think it’s ever been popular to charge separately for the operating system on mobile phones.