That is always what happens when prices go up. The whole point is to reduce the number of buyers who want the product at that price so that there is enough supply to fill the remaining demand. That is how a supply and demand curve works.
But you still have a shortage, right? People still want microchips. In ideal conditions, the price will stabilize at the level where every chip gets sold, but nobody who wants to pay that price has to wait in line for too long. But if you reach that point, you still have a whole lot of buyers who still want a microchip, but who are unable to pay for them at those elevated prices - i.e a shortage.
With fuel, you can reduce your car usage for a while and when prices get back down you can just go back to your old level of fuel consumption. But with microchips, a reduction in "consumption" results in pent-up demand; people who have been waiting a while to buy a new GPU still want to buy that GPU when the prices go down.
The idea is that if you need it bad enough, you can find one at the higher price. If prices didn’t go up, you wouldn’t be able to find one at any price.
Some of the people who would want a chip at $x don’t want it at $x*2, and will just never buy one unless the price drops. If the price never drops because supply is never increased, then they will simply never purchase it.
Well, a lot of people would buy yachts if they were only $1000.... since the price will never get there, they will never get their yacht that they want.
Does that mean there is a yacht shortage?
If chip costs stay high, that just means that is how expensive chips are.
So what's your definition of a shortage then? We're in a situation where a lot of people who want microchips aren't able to buy them because the suppliers aren't able to produce enough of them. What is the difference between that and a shortage?
If we don't produce enough food for everyone to eat, we would be in a similar situation: the price would rise until only the people with the most money could afford food. We would call that a food shortage. Replace food with microchips and that's still a shortage, right? (Albeit a less dire one.)
Or do you follow an ideology where there is no such thing as a shortage, there is only the almighty supply and demand curve?
EDIT: To respond to the yacht thing: It's my understanding that the price of yacths aren't elevated because we're unable to produce enough of them. It is my understanding that yachts are expensive A) because producing them genuinely requires a lot of resources and B) because they're luxury goods which are priced according to their target market. If loads and loads of people suddenly started demanding yachts at their current price, and yacht factories weren't able to keep up with the demand, and the price of a yacht went up significantly due to supply constraints, I would certainly call that a "yacht shortage".
The tl;dr is that a shortage is when there are people who are willing to pay more than the market price for an item but something is preventing the market from raising prices.. either because of laws against price gouging, price caps, or because manufacturers have some other incentive not to raise prices.
So to be clear: You wouldn't consider my food shortage example to be a "shortage", as long as nothing is preventing the market from raising prices to meet the demand?
Because if that's the case, then that's okay. We're not actually disagreeing on anything substantial, we're just using different definitions of the word "shortage". It seems like this is perfectly summed up by this paragraph from the wikipedia page you linked:
> In common use, the term "shortage" may refer to a situation where most people are unable to find a desired good at an affordable price, especially where supply problems have increased the price. "Market clearing" happens when all buyers and sellers willing to transact at the prevailing price are able to find partners. There are almost always willing buyers at a lower-than-market-clearing price; the narrower technical definition doesn't consider failure to serve this demand as a "shortage", even if it would be described that way in a social or political context (which the simple model of supply and demand does not attempt to encompass).
It would seem like calling the chip shortage a "shortage" is completely within the common usage of that term.
Because real markets are inefficient.
Think of it like a highway : why is there a traffic jam on this highway ? Because there was a slowdown somewhere 20 miles up the line and there is massive inertia in the system.
A slowdown somewhere has ripple effects and the inertia of those systems, in the case of semi-conductor manufacturing it takes a long time to increase production capabilities, and the theoretical elasticity of price/volume doesn't hold when you cannot increase volume magically in a week.
Maybe we have both? A price hike won’t necessarily fix a shortage, right? (Price hikes didn’t exactly fix n95 mask demand, for example.)
The video in the article explains that the auto industry stepped out of the queue by cancelling all their orders. Now demand is high and they want to cut back in line. So this story about auto makers is taking advantage of a loose and slightly misleading use of the word “shortage”. It implies there’s only a supply-side shortage, when in fact car makers dropped demand before and are now spiking demand.
Plus a chip fab can take months, and I have no idea what the lead time on ordering one is, but it’s probably not zero, right? Especially with other customers in the queue. The process of ordering fuel is somewhat different and doesn’t need to serialize the buyers.
I'm not sure about n95s specifically but generally we saw mask prices hike, and then production increased quickly enough that there were masks for the majority of the population within a couple of months.
There are sophisticated financial markets for trading fuel, but not for chips. In such a market, firms are incentivised to buy when they anticipate demand will rise (or supply will fall), which increases the price. Then after the price has risen (the demand has materialised), they sell. This distributes the consumption of the underlying resource more evenly across time, making shortages less likely.
Fuel (or really, oil) is a single commodity that everybody is after. If the price is low, and you're anticipating a shortage in the near future, you can buy now and sell later for a higher price. That's as simple as a market can get. buy low, sell high, whilst gambling on future price rises.
However, ICs are not a single commodity - you can't take whatever the foundry is putting out and slam it in place of whatever you actually needed. Each circuit is specific to its application. Sure, you could take a similar chip and rework your product to use the new chip instead of the old, but that isn't how a foundry works. They sell capacity.
Each company that wants their chips made will (or should) have done their forecasting for demand in the short-medium term. The problem is that those term limits have lapsed at a time when manufacturing is in a crunch. So now everybody needs new chips made, and nobody has the capacity to make them all.
Those that can rework their products to use similar chips that are already available should be doing so to maintain business. Those that can't do that, or are unwilling to do that, are paying through the nose to pay off other foundry customers to take their slots. meanwhile, there aren't enough chips to continue product manufacturing, so that's on hold until the new chips come out of the foundry and then everything can resume.
Prices will rise to cover the lull in production. And then businesses will see that people are willing to pay that amount, and so prices will not go back down.
If that isn't a more complicated financial market than oil, then I have no idea what is.
Beause you have only several types of fuel, but you have many thousands types of chips and electronic elements and market for each single element type is not that high. Plus if you store a chip too long, it's no longer useful for automated assembly.
There is a price hike. But paying 2x more for silicon inside e.g. a car that retails for $40k isn't going to be felt by the consumer as a change to the demand curve, it's going to look like "car shortage". So the car manufacturers have to explain that it's due to silicon manufacturing capacity, so now it's a "chip shortage".
Total production is inelastic in the short to medium term, as it increases in units of a whole fabrication plant. Increasing price can only get your chip order in at the expense of someone else's order.
I think the assumption there is that these are running as efficient markets, but the reality likely is that these are negotiated contracts that have not caught up with supply and demand.
