<p>Disclaimer: I am not at all familiar with the hardware industry; in fact I believe <a href="https://economics.stackexchange.com/a/50605/1601">this answer</a> makes most of my points but is better tailored for the specific industry in question.</p>
<hr />
<p><strong>Market share</strong></p>
<p>A possible explanation is that Nvidia has a market share to maintain. If few computers are equipped with their new graphics cards and few people play games on them, it is possible that designers will move on to more available graphics cards. This could hurt Nvidia in the future.</p>
<hr />
<p><strong>Vertical discrimination</strong></p>
<p>Another possible explanation is vertical discrimination/screening by quality. The idea is that if a company sell two products that are imperfect substites of each other, and one is clearly of better quaility, the company can put a high price on a premium product (designed specifically for ethereum mining) and a lower price on the inferior product (designed for gaming). The more price sensitive consumers will pick the later, enabling the company to practice second degree price discrimination.</p>
<p>For a nice example and discussion see <a href="https://www2.econ.iastate.edu/faculty/langinier/teaching2005/615-fall2005/paper-hom2/damagegoods.pdf" rel="nofollow noreferrer">McAfee's Damaged Goods paper</a>. From the introduction</p>
<blockquote>
<p>The 486SX processor of Intel Corporation was initially produced in a
curious way. Intel began with a fully functioning 486DX processor,
then disabled the math coprocessor, to produce a chip that is strictly inferior to the 486DX but more expensive to produce. Nevertheless, in
1991, the 486DX sold for \$588, and the 486SX for \$333, a little over
half the price of the chip that is less expensive to produce (Frenkel,
1991).
<br>
We will argue in this paper that this is not an isolated incident,
and that many manufacturers intentionally damage a portion of their
production. The obvious reason for doing so is to permit price discrimination. By producing an inferior substitute, the manufacturer
can sell to customers who do not value the superior product so much,
without decreasing demand for the superior product very much.</p>
</blockquote>
<p><strong>Note</strong>: In the comments under this answer people more knowledgeable about the industry write that this is an oversimplification of 486_X story. Could well be!</p>
<hr />
<p><strong>Brand image</strong></p>
<p>Many people have concerns about the detrimental environmental effect of cryptocurrency mining, thus it is possible that the above is also a PR move to protect Nvidia's image.</p>

CC BY-SA 4.0
2022-03-01T07:03:48.203Z
It could also be to save the industry from dying in face of constrained supply. OP is perhaps right that NVIDIA can simply increase the supply enough to be a monopolist. But (using some industry specific knowledge) the production expansion is difficult and time consuming. In the meanwhile, NVIDIA does not want the gaming industry to die. So it decides to ration the demand so both get part of the pie, which it can later exploit (as you said by vertical discrimination) by expanding output.
Dayne
CC BY-SA 4.0
2022-03-01T14:23:33.010Z
The case of the 486DX/486SX is not as straight-forward as McAfee makes out.  When you produce large chips (such as the 486DX), sometimes a few gates don't work; normally, the manufacturer has to discard this chip.  Now, with the 486DX, if that error was isolated to the floating point section, what they could do is shut down that section, thus creating a 486SX - hence, turning what would be a total loss into a product that still could be sold.  Now, the number of 486SX's they got was insufficient to meet demand, so they did turn some full 486DX's into SX's - I don't know the exact numbers.
poncho
CC BY-SA 4.0
2022-03-01T15:35:21.287Z
More 486SX fun: machines with 486SX would often have a vacant socket for a "487 math co-processor". But the 487 was a actually a 486DX, which would disable the original 486SX ([source](https://www.cpu-world.com/CPUs/80487/index.html))
Jonathan
CC BY-SA 4.0
2022-03-01T20:33:26.643Z
For what it's worth, what is mentioned regarding the 486 is completely commonplace in graphics processors. It's way more expensive to make separate chip designs for different steppings of GPUs, so they sell the ones where everything is working as the high-end chips and, on the ones where something isn't working, they cut off the power supply to that part of the chip and sell it as a lower-end chip. This both increases yields and reduces manufacturing and design cost. It's standard procedure for complex processor manufacturing where yields are often a problem.
reirab
CC BY-SA 4.0
2022-03-02T06:26:42.027Z
The thing with disabling part of the chip and selling it as a lower-priced SKU is very common to this day, for CPUs as well.  e.g. a 20-core server CPU might be a 28-core die had defects in up to 8 of the cores, so they fused them off.  Once yields improve, then yes they will still do that for some perfectly working 28-core dies.  (There are often 3 sizes of die, low/ medium/ high core count.  Or for desktop, dual vs. quad core until recently we have 4, 6, and 8 core CPUs.  Or Apple's 7 vs. 8 GPU-core M1 chips.)
Peter Cordes
CC BY-SA 4.0
2022-03-02T06:29:40.263Z
This is also a thing for CPU/GPU max frequency: they test each chip to see how fast it could run, and then sell it as an SKU rated for that frequency *or lower*, for the market-segmentation / price-discrimination reasons you mention in your answer.  This is part of why some chips have more headroom for overclocking than others.  (Running at a faster clock speed than guaranteed by the vendor.)
Peter Cordes
CC BY-SA 4.0
2022-03-01T06:01:19.080Z
2022-03-01T19:12:28.880Z
2022-03-01T19:12:28.880Z
Giskard
<p>This topic is explained by <a href="https://www.youtube.com/watch?v=o6d8vbWcIO4" rel="noreferrer">market segmentation with price discrimination in monopolies</a>.</p>
<p>This is widely used in, for example, price discounts for senior/retired people.</p>
<p>By targetting different market segments with different prices you can
maximize profits because <a href="https://www.tutor2u.net/economics/reference/monopoly-3rd-degree-price-discrimination" rel="noreferrer">their price sensitivity is different</a> (i.e. miners are likely to buy at higher prices, while regular consumers will sharply reduce their willing to buy at those same prices).</p>
<p>This is true as long as the following conditions are met:</p>
<ul>
<li>Consumers can't easily switch between segments (i.e. a retired man can't suddenly turn into a child)</li>
<li>Consumers can't (easily) resell their goods to the other segments</li>
<li>It's a monopoly (or oligopoly). In a perfect market situation, your competitors will offer cheaper prices for your more costly segment.</li>
</ul>
<p>This is the same reason why consoles used to be region locked. Otherwise it would be convenient to travel to the cheapest region, and then bring those products back to your home country for resell.</p>
<p>In order to enforce these requirements, GPUs used for gaming can't be used for mining.</p>
<p>Additionally there could be other reasons. For example NVIDIA wants to heavily push Raytracing because it gives them an edge compared to the competition.</p>
<p>However games will not adopt Raytracing if a large portion of their users don't have capable cards. Right now the number of titles supporting RT is low. And those who do, it is just an optional gimmick that doesn't add much to the experience; and the first gen RT cards (i.e. RTX 2080) aren't fast enough for a raytracing-rich experience.</p>

CC BY-SA 4.0
2022-03-01T20:40:06.533Z
While this is a reason that NVidia has historically disabled things not needed for gaming (like intentionally dramatically limiting double-precision math speeds) on SKUs for the gaming market, what's at play with the mining market is more what bta's answer discusses. Miners buying up GPUs and drying up the supply has been a major problem for the consumer PC market (and especially the gaming market) for a while now and NVidia is trying to address that, as the gaming market has been the main driver behind GPU sales since GPUs have existed.
reirab
CC BY-SA 4.0
2022-03-02T01:43:19.487Z
I used to work for a manufacturing company. They had a product with roughly thirty options which all cost the customer extra. Only three of those required hardware changes to the product, and the remaining options were all software switches (not even differing firmware). Even then, the hardware differences were only really required due to export controls.
toxicantidote
CC BY-SA 4.0
2022-03-01T15:25:24.837Z
2022-03-01T16:17:19.117Z
2022-03-01T16:17:19.117Z
Matias N Goldberg
<p>I saw in the news recently that NVIDIA has <a href="https://www.pcworld.com/article/395041/nvidia-lhr-explained-what-is-a-lite-hash-rate-gpu.html" rel="noreferrer">placed limits on the hash rate</a> for mining Ethereum cryptocurrency.  This is purportedly to get more GPUs into the hands of gamers instead of crypto miners.</p>
<p>What is the advantage to NVIDIA to doing this?  Why are they not aiming to simply maximize the demand for their product?</p>

CC BY-SA 4.0
2022-03-01T12:34:28.830Z
Cryptocurrency is a current hype. After the hype, NVIDIA still wants to have a market, which they won't have if gamers were forced to move on and away from NVIDIA.
Polygnome
CC BY-SA 4.0
2022-03-01T18:36:53.223Z
I think it gets clearer when you also consider that nVidia is a software technologies vendor as well - CUDA, RTX, DLSS and other software technologies are reasons why non-crypto customers choose nVidia over their competitors. Adoption of nVidias software howeer requires minimum amount of market share for proper cards (RTX and DLSS need new scarce 3xxx series cards) and if nVidia can't deliver enough of them, they'll fail to form a competitive moat with RTX/DLSS and other AI technologies which will hurt them long term.
Mavrik
CC BY-SA 4.0
2022-03-01T20:32:36.460Z
Granted, their only other competitor is AMD - and their cards are better/more sought after for mining.
Keltari
CC BY-SA 4.0
2022-03-02T21:20:57.003Z
I do not think NVIDIA is being nice to its core community just for the sake of being nice, and it is not obvious to me where the profit incentive is.
Zaz
CC BY-SA 4.0
2022-03-02T21:21:50.000Z
I rejected an edit to change the title to be about NVIDIA specifically, as I am looking for a general answer and am happy to discuss other examples.
Zaz
CC BY-SA 4.0
2022-03-02T21:23:49.470Z
@Giskard: Do you mind if I add the `product-sabotage` tag back? Product sabotage seems to play a role in quite a few interesting phenomenon, e.g. planned obsolescence and it would be quite nice to be able to search the site for questions relating to it.
Zaz
CC BY-SA 4.0
2022-03-03T05:54:10.663Z
I think mentioning the phrase in the title would suffice. It is also undefined and somewhat antagonistic, unfortunate qualities for a tag.
Giskard
CC BY-SA 4.0
2022-03-03T23:47:43.373Z
Strongly related: https://economics.stackexchange.com/questions/30616/why-do-some-businesses-choose-scarcity-as-their-business-model-instead-of-raisin. If consumers were rational, Nvidia would keep on jacking up the price of videocards until supply met demand. But unfortunately they're not rational.
JonathanReez
<supply-and-demand><oligopoly><price-discrimination><product-sabotage>
Why would a company sabotage its product's ability to be used for a particular purpose?
Zaz
# Why would a company sabotage its product's ability to be used for a particular purpose?

(Asked by: username_0 on 2022-03-01)

I saw in the news recently that NVIDIA has [placed limits on the hash rate](https://www.pcworld.com/article/395041/nvidia-lhr-explained-what-is-a-lite-hash-rate-gpu.html) for mining Ethereum cryptocurrency. This is purportedly to get more GPUs into the hands of gamers instead of crypto miners.

What is the advantage to NVIDIA to doing this? Why are they not aiming to simply maximize the demand for their product?

**Tags:** supply-and-demand, oligopoly, price-discrimination, product-sabotage

> **Comments:**
> **username_1**: Cryptocurrency is a current hype. After the hype, NVIDIA still wants to have a market, which they won't have if gamers were forced to move on and away from NVIDIA.  
> **username_2**: I think it gets clearer when you also consider that nVidia is a software technologies vendor as well - CUDA, RTX, DLSS and other software technologies are reasons why non-crypto customers choose nVidia over their competitors. Adoption of nVidias software howeer requires minimum amount of market share for proper cards (RTX and DLSS need new scarce 3xxx series cards) and if nVidia can't deliver enough of them, they'll fail to form a competitive moat with RTX/DLSS and other AI technologies which will hurt them long term.  
> **username_3**: Granted, their only other competitor is AMD - and their cards are better/more sought after for mining.  
> **username_0**: I do not think NVIDIA is being nice to its core community just for the sake of being nice, and it is not obvious to me where the profit incentive is.  
> **username_0**: I rejected an edit to change the title to be about NVIDIA specifically, as I am looking for a general answer and am happy to discuss other examples.  
> **username_0**: @username_4: Do you mind if I add the `product-sabotage` tag back? Product sabotage seems to play a role in quite a few interesting phenomenon, e.g. planned obsolescence and it would be quite nice to be able to search the site for questions relating to it.  
> **username_4**: I think mentioning the phrase in the title would suffice. It is also undefined and somewhat antagonistic, unfortunate qualities for a tag.  
> **username_5**: Strongly related: https://economics.stackexchange.com/questions/30616/why-do-some-businesses-choose-scarcity-as-their-business-model-instead-of-raisin. If consumers were rational, Nvidia would keep on jacking up the price of videocards until supply met demand. But unfortunately they're not rational.  

---

## 2 answers

### Answer by username_11 on 2022-03-01. Score: 12 | Accepted answer

This topic is explained by [market segmentation with price discrimination in monopolies](https://www.youtube.com/watch?v=o6d8vbWcIO4).

This is widely used in, for example, price discounts for senior/retired people.

By targetting different market segments with different prices you can
maximize profits because [their price sensitivity is different](https://www.tutor2u.net/economics/reference/monopoly-3rd-degree-price-discrimination) (i.e. miners are likely to buy at higher prices, while regular consumers will sharply reduce their willing to buy at those same prices).

This is true as long as the following conditions are met:

* Consumers can't easily switch between segments (i.e. a retired man can't suddenly turn into a child)
* Consumers can't (easily) resell their goods to the other segments
* It's a monopoly (or oligopoly). In a perfect market situation, your competitors will offer cheaper prices for your more costly segment.

This is the same reason why consoles used to be region locked. Otherwise it would be convenient to travel to the cheapest region, and then bring those products back to your home country for resell.

In order to enforce these requirements, GPUs used for gaming can't be used for mining.

Additionally there could be other reasons. For example NVIDIA wants to heavily push Raytracing because it gives them an edge compared to the competition.

However games will not adopt Raytracing if a large portion of their users don't have capable cards. Right now the number of titles supporting RT is low. And those who do, it is just an optional gimmick that doesn't add much to the experience; and the first gen RT cards (i.e. RTX 2080) aren't fast enough for a raytracing-rich experience.

> **Comments:**
> **username_9**: While this is a reason that NVidia has historically disabled things not needed for gaming (like intentionally dramatically limiting double-precision math speeds) on SKUs for the gaming market, what's at play with the mining market is more what bta's answer discusses. Miners buying up GPUs and drying up the supply has been a major problem for the consumer PC market (and especially the gaming market) for a while now and NVidia is trying to address that, as the gaming market has been the main driver behind GPU sales since GPUs have existed.  
> **username_12**: I used to work for a manufacturing company. They had a product with roughly thirty options which all cost the customer extra. Only three of those required hardware changes to the product, and the remaining options were all software switches (not even differing firmware). Even then, the hardware differences were only really required due to export controls.  

---

### Answer by username_4 on 2022-03-01. Score: 8

Disclaimer: I am not at all familiar with the hardware industry; in fact I believe [this answer](https://economics.stackexchange.com/a/50605/1601) makes most of my points but is better tailored for the specific industry in question.

---

**Market share**

A possible explanation is that Nvidia has a market share to maintain. If few computers are equipped with their new graphics cards and few people play games on them, it is possible that designers will move on to more available graphics cards. This could hurt Nvidia in the future.

---

**Vertical discrimination**

Another possible explanation is vertical discrimination/screening by quality. The idea is that if a company sell two products that are imperfect substites of each other, and one is clearly of better quaility, the company can put a high price on a premium product (designed specifically for ethereum mining) and a lower price on the inferior product (designed for gaming). The more price sensitive consumers will pick the later, enabling the company to practice second degree price discrimination.

For a nice example and discussion see [McAfee's Damaged Goods paper](https://www2.econ.iastate.edu/faculty/langinier/teaching2005/615-fall2005/paper-hom2/damagegoods.pdf). From the introduction

> The 486SX processor of Intel Corporation was initially produced in a
> curious way. Intel began with a fully functioning 486DX processor,
> then disabled the math coprocessor, to produce a chip that is strictly inferior to the 486DX but more expensive to produce. Nevertheless, in
> 1991, the 486DX sold for \$588, and the 486SX for \$333, a little over
> half the price of the chip that is less expensive to produce (Frenkel,
> 1991).
>   
> We will argue in this paper that this is not an isolated incident,
> and that many manufacturers intentionally damage a portion of their
> production. The obvious reason for doing so is to permit price discrimination. By producing an inferior substitute, the manufacturer
> can sell to customers who do not value the superior product so much,
> without decreasing demand for the superior product very much.

**Note**: In the comments under this answer people more knowledgeable about the industry write that this is an oversimplification of 486\_X story. Could well be!

---

**Brand image**

Many people have concerns about the detrimental environmental effect of cryptocurrency mining, thus it is possible that the above is also a PR move to protect Nvidia's image.

> **Comments:**
> **username_6**: It could also be to save the industry from dying in face of constrained supply. OP is perhaps right that NVIDIA can simply increase the supply enough to be a monopolist. But (using some industry specific knowledge) the production expansion is difficult and time consuming. In the meanwhile, NVIDIA does not want the gaming industry to die. So it decides to ration the demand so both get part of the pie, which it can later exploit (as you said by vertical discrimination) by expanding output.  
> **username_7**: The case of the 486DX/486SX is not as straight-forward as McAfee makes out.  When you produce large chips (such as the 486DX), sometimes a few gates don't work; normally, the manufacturer has to discard this chip.  Now, with the 486DX, if that error was isolated to the floating point section, what they could do is shut down that section, thus creating a 486SX - hence, turning what would be a total loss into a product that still could be sold.  Now, the number of 486SX's they got was insufficient to meet demand, so they did turn some full 486DX's into SX's - I don't know the exact numbers.  
> **username_8**: More 486SX fun: machines with 486SX would often have a vacant socket for a "487 math co-processor". But the 487 was a actually a 486DX, which would disable the original 486SX ([source](https://www.cpu-world.com/CPUs/80487/index.html))  
> **username_9**: For what it's worth, what is mentioned regarding the 486 is completely commonplace in graphics processors. It's way more expensive to make separate chip designs for different steppings of GPUs, so they sell the ones where everything is working as the high-end chips and, on the ones where something isn't working, they cut off the power supply to that part of the chip and sell it as a lower-end chip. This both increases yields and reduces manufacturing and design cost. It's standard procedure for complex processor manufacturing where yields are often a problem.  
> **username_10**: The thing with disabling part of the chip and selling it as a lower-priced SKU is very common to this day, for CPUs as well.  e.g. a 20-core server CPU might be a 28-core die had defects in up to 8 of the cores, so they fused them off.  Once yields improve, then yes they will still do that for some perfectly working 28-core dies.  (There are often 3 sizes of die, low/ medium/ high core count.  Or for desktop, dual vs. quad core until recently we have 4, 6, and 8 core CPUs.  Or Apple's 7 vs. 8 GPU-core M1 chips.)  
> **username_10**: This is also a thing for CPU/GPU max frequency: they test each chip to see how fast it could run, and then sell it as an SKU rated for that frequency *or lower*, for the market-segmentation / price-discrimination reasons you mention in your answer.  This is part of why some chips have more headroom for overclocking than others.  (Running at a faster clock speed than guaranteed by the vendor.)  

---

