Manufacturing Strategies in the Semiconductor Industry: the Case of the Dram Market

The growth in electronics and the computer market has led to an increase in demand for semiconductor devices and the accompanying sustained innovation. Yet with the consequent requirements for huge capital investment and research and development into the fast changing technology, semiconductor manufacturers are faced with substantial risks. Whence the analyses of the market structure and the formation of manufacturing strategies are crucial in the semiconductor industry. In this paper, the authors employ an n-firm Stackelberg competition model to form a three-stage manufacturing game. A comparison is then made between this variant of the Stackelberg model and Cournot. A first mover advantage in DRAM production is the result and there is thus a financial advantage to becoming the leader. Furthermore, it is a strategy for DRAM manufacturers to commit more capacity in order to deter further entrants. Such behaviour may also explain the volatility and the common over-capacity problem in the DRAM market.