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Comment by blihp | Hacker News Reader

Oversupply is great for consumers but very bad for suppliers. Neither extreme is healthy long term. You generally want a balance between supply and demand so that suppliers have a predictable target they're aiming at and can expect a reasonable profit given the capital expenditures needed to make next generation products. If we go into a prolonged oversupply situation, that will be great for prices to consumers in the short term. However the longer it persists this will of course limit, or even eliminate, profits that can be made. As a result, companies will reduce production capacity and eventually R&D for their next generation products. This in turn will tend to increase prices with minimal product improvements longer term.

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I hear you man, but guess what, I'm not a supplier, so again: qui bono.

You're argument assumes we have anything close to a healthy economy now. And in another world, you'd be right. However, that not being the case, your argument is moot at best and disingenuous at worst.

The bullwhip effect, the wikipedia page on it is pretty good, has nothing to do with the economy per se. I don't think we have seen it at display as big, as long and as global in my life time. My professional opinion is that a lot can simply attributed to disrupted supply chains and an overall bullwhip effect.

You're looking at it purely from the short term perspective of say GPUs, cars etc. as a consumer. Sure, a short term oversupply to drive prices back down to a sane level (or even below sane for a little while) would be a good and healthy thing. That's coming.

However, what the article is talking about is the risk of a longer term oversupply situation at the foundry level. If that happens the result will likely be even more consolidation. The downside to you as a consumer would be lack of innovation and flat to higher prices over time.[1] Once you get below a handful of players in a market, the worse your options as a consumer get.

[1] see Intel CPUs for much of the 201X's

Over supply lead to consolidation. The weak get acquired. There are currently only 4 legit foundries, a legitimate crisis could turn that into 2 or 3. The less competition there is the more market failures there will be.

So you're saying NVIDIA will just give up and stop making video cards?

Not at all. The first noticeable things they'd probably do are ramp down production to meet demand and stretch out product generations even longer. The improvements between generations would be much smaller when they did arrive. Prices would still likely go up generation over generation. The less profit they can look forward to from increasing unit sales from market demand, the more they'd start cutting corners to make their numbers from the demand that did exist... one way or another they will make as much money as possible.

It's arguable that they've been doing a bit of this over the past couple of generations... it would get far worse in a chronic oversupply situation.

I don't find a transition from JIT to JIC to be very bad for anyone.

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