Memory modules are made with DRAM chips, which are manufactured in mass quantities in enormous fabrication plants (often referred to as "fabs"). Fabs can take up to two years to build and require substantial capital investment: approximately $3 billion per plant. These time and cost factors directly affect on the ability of the memory market to adjust quickly to fluctuations in supply and demand. When demand for memory chips increases, chip manufacturers typically do not respond immediately because the investment required to add more capacity is substantial and may not pay off, especially if all the competitors are doing so at the same time. Therefore, the immediate effect is that prices rise as manufacturers assess whether the increase on demand is temporary or substantial enough to warrant investment. By the same token, when there is an oversupply situation in the market, chip manufacturers are willing to sustain losses for a long time while prices fall to below breakeven levels. This is because in many cases it costs more money to shut a plant down than to continue to produce and sell chips at below cost. Also, the longer a manufacturer can hold on, the greater the chance of "being there" to reap the rewards when competitors reduce capacity and the market turns around again.

WHY MEMORY PRICES FLUCTUATE

There are several factors that can affect memory prices. A few of these include: demand, DRAM manufacturing levels, inventory in the marketplace, time of the year, new operating system releases, and computer sales. All these things can affect memory prices at different times, either separately or simultaneously.

The most important thing to keep in mind when buying memory is that the price of 256MB today will most likely be different than the price of 256MB next quarter. The best rule of thumb is to compare memory prices close to your time of purchase. When doing price comparisons, it's more important to make sure you are making equivalent comparisons on module types than how the actual price per MB varies over time. If there are shortages in the market it's most important to be sure that what appears to be a "great deal" isn't a "short-cut" module built from off-spec components. In an oversupply market, you're much more likely to get a great price, but keep in mind that many manufacturers are losing money and may take shortcuts on testing and other expensive production quality measures to compensate. Refer to the quality section above for more details on this.