The invisible hand and computer chips
from Gary Flomenhoft and the RWER’s current issue.
We are first looking at items produced for sale on the market, and in particular a competitive market. The conditions for maximizing consumer surplus are approached in some industries. The most obvious one is the microelectronic industry, where Moore’s law has prevailed for many decades since first stated in 1965, doubling computing power at the same price every 18-24 months. Competition between Intel, Samsung, Qualcomm, Micron, etc. is fierce, dropping prices, while improving performance. The Top 10 manufacturers in 2013 from Wikipedia with market share are:
1 Intel Corporation USA 14.8 2 Samsung Electronics South Korea 10.5% 3 Qualcomm USA 5.5% 4 Micron Technology USA 4.5% 5 SK Hynix South Korea 4.2% 6 Toshiba Semiconductor Japan 3.9% 7 Texas Instruments USA 3.6% 8 Broadcom USA 2.6% 9 STMicroelectronics France Italy 2.5% 10 Renesas Electronics Japan 2.5%
No company has a majority of market share, so monopoly is avoided, and the industry remains competitive. Competition may not be perfect but it is substantial, and entry and exit is limited mainly by investment capital. Many of the products are homogenous and interchangeable, for example processors on mother boards. Globalization has resulted in extreme factor mobility as companies move factories and resources around the world for the most favourable location, mainly to reduce labor costs. Information may not be perfect, but the technology for producing microelectronics is widespread. Therefore the pre-requisites for maximizing consumer welfare are present in microelectronics and the facts support it.
Many electronics-based products have declined in price. According to Yahoo finance the following reductions have occurred: televisions (down 77.9 percent); computers (down 88.3 percent); audio equipment (down 39.3 percent); and videocassettes, video discs and other media, including rentals (down 20.4 percent). Over the last decade they also document a 6.6 percent drop in the price of new cars and trucks, 44.4 percent drop in the price of toys, 11 percent drop in clothes, and the cost of a timepiece fell 6.2 percent. Reducing prices result in individuals having greater income to spend on other items, which from a purely consumption standpoint increases their welfare. In these cases the “magic of the market” actually works to create greater consumption and prosperity. Polanyi conceded that even though commodification of labor imposed severe cultural and social costs to workers and their families, it also contributed to economic “improvement” and growth.
 Moore, Gordon E. (1965). “Cramming more components onto integrated circuits” (PDF). Electronics Magazine. p. 4. Retrieved 2006-11-11.