The impacts of manufactures' capacity and pricing decisions on Dynamic Random - Access memory market

Abstract

Dynamic Random-Access Memory (DRAM) market is a capital-intensive oligo polistic market with less than ten major players. Capacity investment decisions of manufacturers affect the demand-supply balance in the market and determine the price level. Pricing decisions affect the overall demand and distribution of demand amongst the DRAM manufacturers. These players adapt their decisions over years by learning from the market dynamics. The aim of this research is to investigate how different capacity investment and pricing decisions of manufacturers affect the price dy namics under different scenarios such as random demand fluctuations between DRAM generations, supply and demand shocks. Coordinative and adaptive strategies of man ufacturers are also considered in this research. Agent-based modelling and simulation is a convenient tool to model a system with multiple autonomous interacting players with adaptive capabilities. This study shows that in case of an under-capacity investment coordination, the price in the market increases. However, if one of the manufacturers defects from the coordination, others must defect from the agreement to prevent the loss of market share. Supply and demand shocks create bullwhip effect in the price levels, however the market recovers from a shock after a few product generations. The stationary or random behaviour of demand between generations does not affect the price level in the market significantly in the most of the experiments. Finally, adap tive pricing decisions based on price differentiations may help manufacturers to gain or protect market share in some special cases such as supply shocks. However in most of the cases, the effects of capacity decisions dominate the effects of pricing decisions.