Would the microchips industry benefit from an oligopical market structure?

Anti competitive behaviour is when a firm or group of firms may engage in order to restrict inter-firm competition to maintain or increase their relative market position and profits without having to provide goods and services at a lower cost or of a higher quality. I recently read in an FT article that there have been anti-monopoly investigations into the microchips industry due to allegations of price-fixing by South Korea’s Samsung, SK Hynix and US-based Micron Technology. These three firms control about 95% of the global market for dynamic random-access memory chips. This oligopical market structure means these firms cannot act independently and need to work interdependently. But to what extent is the microchip industry best suited to have an oligopical market structure, from a consumer’s perspective?

Firstly, with only a few businesses offering products or services, it will be easy for consumers to compare and choose the best option for their needs. In other types of market, it can be very challenging to thoroughly look into all the things offered by a huge group of companies and then compare prices. However, a problem that can arise from this is if the firms dominating begin to collude and choose to produce very similar products with little investment into research and development to save costs. Generally, companies in oligopolies become very settled with their ventures, as their operations and profits are guaranteed. This means that they would no longer feel the necessity to create new innovative ideas. This means products can be produced with low quality and there may be no variety at all in the market for microchips, which is bad for consumers with different needs and wants.

On the other hand, an advantage for consumers of the microchips industry operating under an oligopical market structure is that the prices in an oligopoly are stable. Changing the price of their microchips can have potential risks for a firm, whether it be lowering or raising the price. If a firm decides to lower the price of their microchips, although in the short term they will see an expansion in demand due to customers being willing to buy more of their products, this is not permanent and they could potentially lose their market share in the long term. Therefore keeping their prices stable is a rational strategy for the three dominating firms in the microchip industry. This is beneficial to consumers, as they do not need to change their budgets in response to changes in the price of these goods. 

Alternatively, it can be argued that these 3 firms may collude closely and act as a monopoly. This is a disadvantage for consumers as these 3 firms will have high price setting powers and therefore it is possible for there to be high fixed prices. Although in this oligopical market it is possible for competitive prices to occur, where firms compete to provide the lowest price of microchips for consumers, they are rarely very far apart from any other company that they could compete with. This is because the businesses and corporations that are part of the market agree to fix prices. This means there is a set limit for just how low prices can go, forcing consumers to pay high prices no matter what. Furthermore, these firms may decide to maximise supernormal profits and this could result in prices rising drastically, which negatively affects consumers.

Will robots replace human labour?

An article in the FT a few weeks ago discussed the effects the automation of industries can have on the labour market. Industrial automation is essentially the use of computers, robots or information technologies to replace human beings in handling different processes of an industry. A concern amongst many individuals is the possibility of there being no need for human labour in the near future, potentially increasing unemployment.

The article spoke about how the ADB (Asian Development Bank) claimed that the expansion of robots in various industries could potentially create more jobs for potential workers rather than take them away. This seems odd, considering these industrial robots and others forms of artificial intelligence are replacing humans in many jobs by being able to do them better.

However, it can be argued that although there have been huge developments in technology compared to 10 years ago, there is no evidence to suggest that the need for humans to manage and sustain this technology will decrease. Past trends show us that although the use of technology in industries has grown exponentially, there has still been a steady decline in unemployment since the 2008 recession.

It can’t be accurately predicted whether the automation of industries will boost or harm jobs and to what extent, but what can be studied is the impact it will have on an economy. The main desired outcome from industries when they invest in technology is growth, both in productivity and their businesses. Investments in machines, computers and robotics drive productivity growth as the quality of labour in industries increases.

  1. Most goods that are currently manufactured require machines to be able to maintain sustainable total factory productivity (TFP). The expansion of robots within a factory essentially make the machines within production more efficient, as even if the human component remains the same, increases in efficiencies through robotics leads to an even higher TFP, which results in a higher overall output within an economy, resulting in a growth in GDP.

What this shows us is that although robots may take away low-skilled jobs, they are creating demand for high-skilled human labour to be able to supervise robots. These jobs will have higher pay which will act as an incentive for potential workers and future generations to improve their education and skill set to acquire these higher-skilled job, which in the long term will result in an improved workforce within an economy.