Computers Price in a Free Market

Computers Price in a Free Market



Computers Price in a Free Market

Introduction

In current world market, it is only reasonable to consider PC's to be an essential commodity for the average house hold. This would mean that people would still buy computers despite higher prices and not buy more in the case of lower prices.

Demand for PC's is not overly sensitive to price changes and is relatively inelastic; hence the steeper demand curve. The fact that we consider the PC market as a whole group and not a particular brand or a subgroup of PC's, further justifies this conclusion. Still, with other things being equal, the demand will decrease with increasing price as the Law of Demand suggests. However, most of the time, the percentage change in price will be larger (in absolute value) than that in the demand.

Analysis

The global PC market is a highly competitive one with everyone trying to supply for the lowest possible price (or suppliers will have to quit the industry in case they cannot supply at the market price). The supply curve would still follow the Law of Supply (Other things being equal, higher price is incentive for suppliers to supply more) but would be more gradual. In other words change in quantity traded is very sensitive to price changes (Brock, Gerald, 1975).

PC prices are always going down, particularly as new technologies supplant the old. But the rate and pace of this year's declines are otherworldly. Toni Duboise, an analyst with the research firm ARS, offers a telling example--Dell's entry-level desktop, the Dimension L. In June last year, the cheapest preconfigured model cost $1049, including monitor. By October, that price had dropped about 18 percent, to $859, and by January it had plunged another 21 percent to $679. While the price has stalled there, Dell continues to upgrade components--a faster CPU, for example--which means today's buyers get more for that same $679 than they would have back in January. Compaq, Gateway, Hewlett-Packard, IBM, and others have followed suit. For example, HP's Pavilion 6835, launched in April for $699 (sans monitor), is HP's first sub-$700 stand-alone PC that's shipped with a CD-RW drive, says Sam Szteinbaum, business manager for HP's North America Consumer Computing Division (Bresnahan, T.F. and Malerba, F.1999).

Thanks in part to aggressive moves by Intel, even systems with the company's state-of-the-art Pentium 4 CPU are selling at reasonable prices. Intel's George Alfs says some vendors are already selling 1.3-GHz P4 systems for as little as $900, and notes that prices on systems with the new 1.7-GHz P4 are also dropping.

Case in point: Within weeks of the 1.7-GHz P4 launch, Dell was offering a well-appointed 1.7-GHz P4 system with a 19-inch monitor for $1798. Meanwhile, many systems using AMD's top-of-the-line 1.33-GHz Athlon sell for even less. Notebook deals are easier to find now, too, says Matt Sargent, another analyst with ARS. For example, Sargent says that Compaq's recently launched $1799 Presario 800--a ...