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Why would 10,000 servers cost more than 100 servers? It seems like if you are buying all of your parts in bulk they are going to be cheaper. I'm pretty sure Intel's pricing on CPUs are cheaper by the tray than individually.

I know at least when I've bought 20-30 servers at a time, I was able to get a lower cost than when I've only been buying one.

Prices go down until to a certain amount, then then start to increase. Analogy: you want to buy shares of company X. If you buy 1, brokerage costs are high compared to your investment. If you buy 100, you still get the shares from the top of the order book, and fees become negligible. Buy 10M, and you will pay much-much more per share because supply is not going to be there.

Just think of the simple supply-demand curve. As demand increases, price increases as well. The bulk discount pricing is only valid for amounts that provide better utilization of the supply chain. If Intel can produce 1M chips a month, then if somebody orders the last 50k, he might get a discount. If someone wants 2M, then he needs to pay a huge markup because the supply chain is not ready.

And Amazon is definitely big enough to move the equilibrium price up.

I see no explanation for why suppliers wouldn't match demand. Aside from the HDD shortage which hit everyone, I've seen no issues like you're describing where essentially the market runs out of servers/CPUs/etc.

Because that's the only way this theory applies, if they're completely unable to meet the demand due to some specific shortage in the market.

The only reason your shares analogy makes sense is because there ARE a finite number of shares available at any given time, and buying too many drives up the cost in the entire market. Most manufacturers can scale up production as demand increases.

There are a lot of reasons why suppliers might not match demand.

Let's say you have a factory that runs at 90% utilization and somebody crawls out of the woodwork who wants to order 3 factory-months worth of widgets, delivered next week.

Well first of all, you cannot meet that schedule, so you turn away the order in the instant case.

Now the question is: if we were to scale up production, what is the chance that some new person will crawl out of the woodwork with a similar instant order once the factories are ready? Because if we judge what has happened a one-off case, then we will refuse to meet the demand, whether it is real or not.

(Of course we're also making a lot of simplifying assumptions here like that you have access to capital, that there is no regulatory issue with scaling up production, that increased production does not open you to new lines of attack from your competitors, etc. Which are not good assumptions in general.)

It is our judgment of the demand, rather than the real demand, that controls production. If we are manufacturing, say, kevlar vests in 2001, we may very well interpret a large order as representing an underlying demand shift. On the other hand, if our widgets are luxury cars in 2008, we may interpret a similar set of facts as a one-off order.

The insight here is that real demand is not known at the time that supply is trying to meet it; it is estimated. The extent to which the market clears depends on how good the estimation is. With something like oil we understand demand fairly well, but in markets like consumer electronics the demand predictions are poor. That is why on the one hand Apple is chronically short of iPhones and simultaneously Amazon cannot give its phones away: all the estimates were off.

In short, the more your widget is impacted by technological or cultural shocks, the more likely it is that suppliers won't adjust to meet demand.

No, they can't scale demand that quickly. And time matters. Also, there's no situation where demand can't be met (well, extremely rarely it happens, in case of inelastic goods). What happens is you increase prices until the demand lowers to match the supply. You never run out of products. Similarly, oil supplies will last forever, we won't ever run out of fossil fuels. Simply it will not be worth using them because of the price.

Really, microeconomics 101, all of us should have studied this in the first semester of any engineering degree :)

> Really, microeconomics 101, all of us should have studied this in the first semester of any engineering degree :)

That seems like quite a snide remark.

I have in fact studied "economics 101," and while you're using basic economic theory to form your opinions, you're mixing that in with data which you've just created for the sake of supporting your original point.

Essentially you have no supportable reason to assume that supply cannot meet demand OR that Amazon cannot space out their demand/pre-warn the supply chain. Amazon could, for all we know, give them a 12 months lead time.

To be honest this entire conversation reminds me of that scene in Good Will Hunting when the guy in the bar is mouthing off about "market economy in the early colonies" because he just finished studying them last semester. Reading your posts comes across like you're trying to shoehorn in as much eco 101 knowledge as you can. And rather than provide data or any meaningful explanation for why you believe the market would go a certain way, you just shove in more econ 101 theory and hope for the best.

This post in particular lacks any substance, and is just trying to impress upon us how much econ 101 you know. But really I am more interested in why you believe the market wouldn't meet demand, rather than how many buzz words and theory names you can reproduce from your textbook.

You make it sound as if Amazon buying servers was some kind of unexpected freak event.

They are just one of many large companies who buy hardware constantly.

Google, Microsoft, Facebook, Rackspace, Leaseweb, to name a few others...

Since most vendors source their parts from two or three different places you'll often find that even though you ordered 2000 'identical' computers, they'll have for example two or three different makes of hard drives in them, and sometimes different Bios versions and RAM configurations (2x8GB instead of 4x4GB for example)

If you need 10000 identical severs (ie exactly the same firmware versions, motherboards, hard drive version etc) then that is a bit of a pain since they can't just grab the next 10000 servers out of inventory and ship them to you. You have to make it as a separate special order.

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