Why are computers getting more powerful, but costing the same?

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Auditor Mike Sealander from Brooklin, Maine asks:

The last four laptops I bought all cost around $2,000. They have been workplace substitutes: machines good enough to run [computer-aided design] programs. The quality of each successive laptop has improved, seeming to support the idea that innovation brings down the cost of technology. But it is interesting that they all cost the same amount. Is pricing in the tech industry based on what the consumer will pay, not what it costs to produce the widget?

Inflation dominated economic headlines as it hit four-decade highs. Consumer prices rose at an annual rate of 8.3% in August. However, computers generally belong to a category known as disinflationary goods.

“That means they actually get cheaper over time,” said Avi Greengart, president and principal analyst at Techsponential. “As engineers and scientists improve technology and add this new technology to your new laptop, that ultimately means prices seem stable.”

For high-end consumer laptops, you’re looking at a price tag between $1,000 and $1,500. Some fancy machines with large data storage capacity and better graphics can even go beyond the $2,000 range. However, Greengart added, most people still buy laptops under $800, while many school districts that buy computers in bulk are opting for $200 Chromebooks.

So buying a high-quality laptop will cost more, but prices for products of the same level tend to hover around the same range over time, noted Carolina Milanesi, president and principal analyst at Creative. Strategies.

Greengart explained that computer prices are disinflationary because they adhere to Moore’s Law, named after Intel Corp. co-founder Gordon Moore, who described how advances in semiconductor technology reduce the cost computing power.

“Engineers and scientists are able to cram more transistors onto a chip over time,” Greengart said.

“Making these chips smaller creates bigger and better returns, allowing them to hold the price the same or lower it with more performance over time,” he added. “Generally speaking, these products get better and cheaper over time. And so the makers try to scale you up so you always spend the same amount of money.

Tom Mainelli, vice president of the device and consumer research group at IDC, pointed out that the PC market is very competitive.

“If someone is pricing their product significantly higher than a comparable product, they may struggle to sell it,” he said.

The pandemic and technology spending

Experts have noticed that the pandemic, and the way it has moved people away from offices and other gathering places, has changed some consumption habits.

For example, you might need a better webcam, Greengart said, thanks to remote work and the limitations of face-to-face interactions. And some consumers have turned to high-end laptops for their gaming capabilities.

Before the COVID-19 crisis, Milanesi said, consumers tended to stay under the $1,000 price tag and hadn’t upgraded their PCs in years.

“The computer was something that was maybe in our home office or in our bedroom. We would go there to do things like our taxes or things that weren’t necessarily exciting,” Milanesi said. And then during COVID, we started doing more, both from an entertainment and productivity perspective.”

Because people were staying home, not traveling, or eating out, they figured they needed a new computer to make the most of their restricted lifestyles, IDC’s Mainelli said. .

At the start of the pandemic, Greengart said, there were supply constraints on graphics cards, which hampered the availability of computers. But that trend has reversed in the past six to twelve months because the cryptocurrency crash released the supply of these cards.

“We are now seeing much better supply and weaker demand,” he said. “A lot of the purchases that would have been made in 2022 or 2023 were made in 2020 and 2021 out of necessity, so finding a laptop is much easier.”

The global chip shortage has led some companies to raise the price of their products up to $50 in the first half of 2021, The Wall Street Journal reported. The consumer price index for computers, peripheral equipment (such as monitors and printers) and smart home assistants shows that the prices were raised since the beginning of the pandemic until the beginning of 2022, and they are now on the decline.

Milanesi said vendors were cautious about supply during the pandemic and didn’t want to change prices too much — so they simply chose not to have certain computers in stock.

“What you saw was that consumers were buying what was available,” she said.

IDC’s Mainelli echoed that point, saying average sale prices can be misleading because during the pandemic people were buying better PCs than they did three to five years ago.

In other words, it’s not that manufacturers have raised the price of a computer from $500 to, say, $1,000. It’s that consumers bought these $1,000 computers for the reasons mentioned above – limited low-end availability and a desire to work and play on more capable machines while stuck at home. inside.

“If you’re a PC vendor and you’re like, ‘Well, I can only make 100 laptops. Should I make 100 of the cheapest laptops or 100 of my most expensive laptops?’ can guess what their response will be,” Mainelli said.