Sunday, August 14, 2005

No need for caution: free markets at work

Flat-Screen TV Prices Finally Coming Down

Bud Werner and his wife are longtime movie buffs. For more than a year, he pined for a flat-panel television, thrilled by 60-inch screens thin enough to hang on a wall and turn his living room into a mini-movie theater. But he couldn't overcome sticker shock: Some flat panels were selling for as much as $20,000 at first, as much as a new car. Like a lot of fans of flat-panel TVs, Werner, who owns a sign-making business, held off buying. Until now, that is.

Prices for flat panels have finally begun to tumble — by as much as 35 percent in the past year — as soaring demand for the two leading flat-panel technologies, plasma and liquid crystal display, or LCD, attracts a host of new competitors.

"I'm excited," said Werner, 54, whose patience was rewarded this month when he bought a 50-inch plasma television at Best Buy for $3,800. "We already have the wall picked out where it's going to hang."

Lesser-known brands, such as Westinghouse Electric Co., Regent USA's Maxent, Syntax Corp.'s Olevia and Norcent Micro Inc. are slashing prices to compete against more-established names like Sharp Corp. and Sony Corp., forcing them, in turn, to charge less.

Semiconductors and other TV components also are getting cheaper, and the industry continues to find ways to trim production costs.

Now, a 42-inch liquid crystal model retails for about $4,200 on average, and the same-sized high-definition plasma sells for around $2,900, said Riddhi Patel, senior analyst for iSuppli, a market research firm in El Segundo, Calif.

Still too expensive? Price-conscious consumers shouldn't worry, analysts say, as flat-panel prices have yet to bottom out.

Some major retail chains continue to charge a premium for plasma and liquid crystal sets, pocketing 25 percent profits on larger models, Patel said.

"There is plenty of room for retailers to squeeze more out of their profit margins and attract customers," she said....

The price war, meanwhile, is taking a toll on flat-panel manufacturers. Sony blamed increased competition from Asian manufacturers who produce cheaper goods, including flat-panels TVs, when it reduced its full-year forecast by 90 percent. Last month, Sony, Toshiba Corp., and Hitachi Ltd. reported quarterly losses.

Some manufacturers have agreed to share risk and expense. Hitachi and Matsushita Electric Industrial Co., the maker of Panasonic televisions, began jointly making LCD televisions in February, as did Sharp and Fujitsu Ltd.

Despite the competitive environment, the companies continue to invest heavily in flat panels knowing that once the market matures they stand to cash in....
Isn't it wonderful? Competition is forcing manufacturers to be more efficient. In the scramble for market share, they'll cut costs and accept lower profit margins. Meanwhile, the high initial prices encouraged others to enter that particular market. That's precisely how it's supposed to work.

It's not surprising that any advanced technology should become so cheap so (relatively) fast. Manufacturers generally need higher profit margins to recoup R&D costs, but even during that initial period, competition forces prices down. It was early 1998, I think, when I saw an ad for one of Philips' first rewritable DVD drives: over $17,000. Seven years later, how much do DVD burner drives cost?

The large flat-screen manufacturers remind me of the dinosaur airlines. They flew high (no pun intended) for many years but are now struggling against the younger, leaner discount airlines. I have no sympathy for American, United, et al, nor for Sony, who has "blamed increased competition" from those who can produce reasonable substitutes more cheaply. American's remedy is abusing the power of government to compete.

The bottom line isn't necessarily everything, but ultimately what consumers care most about is satisfying their needs for the least cost. I had paid a lot, too much, for a Toshiba DVD player. The drive stopped spinning after only a couple of years, and rather than spend time and endure aggravation tinkering with it, I bought a no-name replacement for only $35. Odds are that it will last as long as the Toshiba.

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