This is a continuation of blogpost #2. While it’s clear that a weird phenomenon is taking place, it isn’t clear what the crux cause of the broader market situation. The question still remains why was I rcenetly able to buy a prebuilt PC from MSI that was less expensive than if I had bought the parts individually? Let’s generalize this scenario:
Scenario: Given two computers with the equivalent (equivalent here meaning performance-wise) parts where: one of which is pre-built and the other of which is self-assembled, how can the situation arise where the pre-built is less expensive than the self-assembled?
Plausible mechanisms:
- PC parts are purchased in bulk from OEMs by the assembling company – many of whom are OEMs themselves. Thus, the cost per [GPU] part per computer should be lower than an individual attempting to by the same part from an OEM.
This mechanism makes some sense as we know that OEMs buy the baseline parts and design schematics from ODMs. Assuming the OEM isn’t the assembler itself, the OEM can then go on to sell the products in bulk to assemblers.
Moreover, sometimes the OEM is actually the assembler of pre-built PCs. Earlier, I mentioned that I bought a pre-built PC from MSI. MSI is a trusted computer parts manufacturer and I just recently found out they have a trifecta vertical supply-chain. If you browse their website you can see they are an OEM, an assembler of pre-builts, and even a retailer of pre-builts. Hence in this scenario, they can buy and sell parts from themselves for free bypassing many logistical costs.
- Pre-built PCs are not sold on-the-spot after production. Instead, they are stored in warehouses and sold to retail overtime.
This is plausible as a batch of computers can take multiple months if not years to sell. Consider a case where the assemblers buy a batch of computers made right as the pandemic hit. This case begins with the assemblers putting together the parts and building these PCs. These PCs are then either sold directly to consumers (e.g. like MSI), or sold to retail in bulk. In the latter, the retail demand for pre-builts at this point has not radically changed for pre-builts. This means the retail has extra pre-builts not available for purchase but on stand-by in some obscure warehouse. Time passes and by mid-2020, GPU prices began to hyperinflate. The retailers/assemblers who have bought the PC in bulk at an earlier point in time can now offer competitive pricing to their peers as they didn’t have to pay for the inflated GPU prices. These companies therefore can have a consistent margin on pre-built PCs.
- One other possibility is the pre-built could utilize the with the same ODM model type while having that Owith a different part manufacturer (different ODMs).
Some OEMs have stronger reputations for low probability of part failure (e.g. MSI, ASUS) and hence they are able to charge higher prices as people have faith in the brand-value. Basic economic 101 principles tell me that the easiest way to compete for inferior brands (I won’t name names here!) is to cut prices. The assemblers can then buy
Personally, I think it is a combination of all the mechanisms with the largest emphasis on (II.) as it seems like this explanation best explains how the pandemic affected prices. Keep in mind that PC shucking for GPUs or finding pre-builts with equivalent parts to a custom-built for the same price was a foreign concept pre-pandemic.
I hope you found these PC posts informative and somewhat related to economics. If you have even a modicum of interest in upgrading your PC, there are many resources on the internet that can help you decide whether building a pre-built or going through the process of creating a custom-built is right for you. As a fair warning, I can say that building your own computer the first time means doing extensive research. You would have to learn:
-What parts to buy (CPU, GPU, RAM, storage, fans for cooling, a case, etc.)
-Is the OEM a trust manufacturer?
-Are the parts you are buying at a fair price?
-How do I assemble the parts together?
-What should I do if a part breaks?
-What equipment do I need to assemble the parts (static-free environment, thermal paste, screwdrivers, etc.)
So… if you value your time more than money, then the decision should be easy.
~Ben
