Extremetech editorial calls shenanigans on the price of graphics cards

[Farid]

http://www.extremetech.com/article2/0,1697,2222929,00.asp

When the glowing reviews of Nvidia's GeForce 8800 GT hit the Net, reviewers couldn't believe how great a card it is for "just $200." Many in the tech press took Nvidia's early guidance that these cards would cost "between $200-250" on faith. Others (myself included) did some last-minute calling and emailing to find out what the MSRP was on various cards—the XFX card we reviewed, for instance, carried an MSRP of $249 for the non-overclocked version. Still a great bargain, right?

And that's what those cards cost—briefly. Sometimes you could even find it for less, with special rebate deals that last a week and make the price look low in shopping engines, only to have it inflate when you add the thing to your online cart. The cynic in me thinks that Nvidia works closely with their partners on these rebate deals to make the cards cost effectively $30-50 less in the first week or two, so they seem like a better value and get better reviews, before the prices are jacked up. I have no evidence of this; I'm just cynical that way.

[...]

This situation frustrates us as much as it does you. When we review a product, price is a serious consideration. If we give something a certain rating at a certain price, and the price goes up, it becomes a product we probably would not have rated as highly. This can happen with CPUs, monitors, motherboards, cases, you name it. The current video card battle is just the most visible example right now. Aren't price wars supposed to go in the other direction?

If you want my advice, don't play their game.

You can read the whole editorial entry at the link above.

So, my question to you, B3D forum folks, would be: Is this a matter of shenanigans orchestrated by IHV/AIBs or is it just another example of the good old law of supply and demand doing its thing?

I, for one, would be inclined to think that it's nothing more than the latter doing what it does the best for generations now. That is, unless proven otherwise, I'm not eager to believe that there's some underhanded plan going on the pricing front.

 

[Mark]

My first instinct is to side with the laws of supply and demand as well, but when you notice that every retailer out there has similarly inflated prices, you start to wonder.

 

[Geo]

I think it's chiefly the law of supply and demand, tho also pushed significantly by the business process that the IHV's typically follow for new releases. Which is to go to market with their "risk production". This means by its very nature that you're going to have several weeks gap in new supply coming in to the market after the initial availability. This can be tough enough with a popular high-end release like G80, but can really be a problem with midrange/performance type parts where the demand is much higher. I think that's what we're seeing here.

Tho I do find it fairly hilarious that it happened to both NVIDIA and AMD. At least it hopefully shuts them both up about spinning conspiracy theories about the other on the issue.

 

[3dilettante]

I don't lend much credence to an IHV conspiracy to jerk people around with fake MSRPs.

Unless we can prove that Nvidia and AMD are charging OEMs and channel customers prices unusually close to or more than the MSRP, an artificially low suggested retail price would mean AMD and Nvidia are both saying "no, keep the extra money, we have enough already".

I can think of at least one IHV that wouldn't apply to.

 

[digitalwanderer]

From all the rumors of supply problems I've been hearing I can't help but to blame this on supply and demand no matter how much I personally prefer a good conspiracy theory against a huge corporation or two.

 

[AlNom]

From all the rumors of supply problems I've been hearing I can't help but to blame this on supply and demand no matter how much I personally prefer a good conspiracy theory against a huge corporation or two.

Maybe they should stop sending out so many crossfire review samples and sell them instead.

 

[Silent_Buddha]

I don't lend much credence to an IHV conspiracy to jerk people around with fake MSRPs.

Unless we can prove that Nvidia and AMD are charging OEMs and channel customers prices unusually close to or more than the MSRP, an artificially low suggested retail price would mean AMD and Nvidia are both saying "no, keep the extra money, we have enough already".

I can think of at least one IHV that wouldn't apply to.

Well OEM partners will still be getting their chips at the prices that were negotiated. Until that contract is finished the price can't change. That's why OEM contracts are so valued. It may not have as high of a margin as chips going to retail, however, it's guaranteed revenue. You know how much you need to produce because a contract has been signed for X amount of chips with possibly and option for Y amount of additional chips.

The retail market however is the complete opposite. You have NO idea how many will sell. You have NO idea of just how much demand is out there.

If you make too many, you're losing money holding onto stock that isn't selling and is constantly depreciating.

If you make too little you run into supply issues. And you are losing money due to the fact that you COULD be selling more but you aren't. Or that you are charging too LOW of a price and should be charging MORE.

Once you run into a situation where demand far outstrips supply you then have only 2 options.

1. Raise the price in order to [A] lower demand so that you can supply enough product or take the high demand to mean that consumers are willing to pay more for this product and that you underpriced your product.

2. Raise production to meet demand and expand marketshare. It might not always be possible to raise production to meet demand however, and thus you are back to [1] above.

Both Nvidia and ATI do this. I really see no conspiracy here. Nvidia might have miscalculated by launching 8800 GT earlier than they wanted in order to blunt ATI's market penetration with 3870.

Once Nvidia launched 8800 GT and ATI saw where their performance was in comparison they had no choice but to lower price farther than they originally wanted.

In Nvidia's case, they didn't have that extra month to build (hopefully) sufficient stock.

In ATI's case, they priced it so low that demand far outstripped their ability to continually feed the channel.

Regards,
SB

 

[BRiT]

I see it as Supply and Demand as Dell is/was selling the 8800 GT for $208 and $235, both seeming to fall within the MSRP range.

 

[_xxx_]

Companies exist to make money, so what's the problem here?

Also "Just don't buy"-recommendation - LMAO

 

[Geo]

Companies exist to make money, so what's the problem here?

Also "Just don't buy"-recommendation - LMAO

Well, the problem the editorial is pointing at is that typically reviewers pick which cards to benchmark/compare against based on price points. So if a company is purposefully low-balling their MSRP's they can get themselves easier competition to be compared with unfairly.

 

[_xxx_]

I've yet to see such a review anywhere. Most are trying to get the cards in the same price/performance range + one above and maybe one below.

 

[Humus]

I've yet to see such a review anywhere. Most are trying to get the cards in the same price/performance range + one above and maybe one below.

Not sure what your point is. If you change your price, you also change the price/performance ratio by the same amount, which shifts which competing card you compare to. The 8800GT at the same price as a HD 3870 looks pretty decent, but at 20-30% higher price, it's not.

 

[Mark]

Well, the problem the editorial is pointing at is that typically reviewers pick which cards to benchmark/compare against based on price points. So if a company is purposefully low-balling their MSRP's they can get themselves easier competition to be compared with unfairly.

The easiest solution to that is to average the price amongst a slew of retailer prices, which is what I used to do. The only problem with that is the card you are reviewing is brand new, so you only have the IHV/AIB MSRP to go by.

 

[_xxx_]

Not sure what your point is. If you change your price, you also change the price/performance ratio by the same amount, which shifts which competing card you compare to. The 8800GT at the same price as a HD 3870 looks pretty decent, but at 20-30% higher price, it's not.

My point is, those two cards are the ones being compared in the reviews, with or without the 20-30% price difference - because they're in the same performance slot. You'll never see 3870 being benched against say GF8600, although the price difference in this case is roughly the same. Similarly (+- 20-30%) performing cards will always be similarly priced (+- 20-30%), the companies will also always make sure it stays that way.