A Chip Cycle

In early 1996, "the chips were down." That is, computer memory chips were selling for low prices. The March 23-29 issue of the Economist magazine, "When the chips are down," pp. 19-21, reported on chip prices. According to the report, prices were so low that the manufacturers were losing money.

The Economist claims that there is a cycle in the chip industry. Chip manufacturing requires very expensive investment, and it takes a long time for the manufacturing plants to be built and begin to produce. When profits are high, they claim, surges of investment take place; when the new plants or "fabs" (fabricators) come on line, prices drop.

This sounds very much like the "cobweb cycle" or "corn-hog cycle" first reported in markets for agricultural products such as corn and pork. We will explore the "cobweb cycle" in the next few pages.

The Corn-Hog Cycle