The average price of desktop computers has been falling at an estimated average rate of 4.5% annually in the three years to 2017, driven mainly by suppliers’ falling input costs and rising competition from substitute products. Prices for computing hardware, one of the main components of desktop manufacturing, have been in a long-term state of decline as rapid technological advances have made semiconductors and electronic components cheaper from year to year. Software, another key input, has also fallen in price due to heavy competition from open-source and free alternatives. As a result of these falling input costs, suppliers have been able to lower desktop prices while maintaining their profit margins, to the benefit of buyers.
Demand drivers for desktop computers have also trended in buyers’ favor. For example, vendors have been forced to lower prices due to rising demand for substitutes, such as laptop computers, tablet computers and smartphones. Demand for these devices has grown in line with the number of mobile internet connections. Smartphones and tablets, in particular, have rapidly penetrated the market due to their convenience and unique functionality. Users can easily access these devices at various locations, and many of them have mobile broadband capabilities that provide users with constant online access. As demand for these devices has risen, demand and prices for desktop computers have fallen accordingly.
Although these factors have worked in buyers’ favor, the expanding economy has limited the rate of decline in computer prices. The number of businesses has been growing in the past three years, while consumer spending has risen as well. As a result, businesses and consumers have been somewhat more likely to procure desktop computers, placing slight upward pressure on market demand and prices. Meanwhile, intense market competition has been forcing most suppliers to decrease prices at a similar pace in order to remain attractive to buyers, leading to low price volatility. Low price volatility benefits buyers by making it easier for them to accurately anticipate future costs.
The price of desktop computers is forecast to continue falling at an annualized rate of 2.6% in the three years to 2020 as trends that caused the declines in the past three years to persist. For example, suppliers’ input costs will continue to fall with each passing year due to the declining prices of hardware and software. Hardware will be cheaper because technological advancements will make manufacturing hardware progressively less expensive, while software prices will fall due to high competition from open-source and free software alternatives. These trends will allow suppliers to cut prices to battle encroachment from substitutes, such as tablets and smartphones, while maintaining profitability. Desktops’ main advantage over these competitors is their stable performance. However, as other devices become increasingly capable of competing on this level, businesses and consumers will be more likely to opt for them instead of computers due to their greater mobility. As desktops continue to lose market share to substitutes, suppliers will be pressured to lower prices to remain competitive.
However, desktop computer prices are anticipated to fall at a slower rate than they have in the past three years as the economy continues to show strong growth. The number of businesses is anticipated to grow in the three years to 2020 due to higher consumer confidence and a relaxed lending environment. Furthermore, consumer spending is anticipated to grow as higher disposable income rates allow consumers to spend more on various goods. The resulting boost in demand for desktop computers will put upward pressure on price, limiting the extent of price declines.
Fortunately for buyers, price volatility is expected to remain low in the three years to 2020. The sustained market competition will prompt suppliers to decrease prices significantly and at similar rates. Low price volatility benefits buyers by helping them predict future expenses more accurately and budget accordingly. In addition, because prices are projected to fall in the three years to 2020, buyers can put off buying decisions if they so desire.