Semiconductors: Everywhere, in everything
The story of pricing power in the semiconductor industry is simple: Soaring demand meets limited supply. Today semiconductors can be found not only in mobile phones and laptops but also in everyday household products like refrigerators and ovens. New cars can require as many as 100 chips. Indeed, the auto industry has felt the brunt of the global shortage in semiconductor supply.
The rollout of new technologies, like 5G, artificial intelligence and cloud computing have further fuelled the world’s appetite for chips. In August, Taiwan Semiconductor Manufacturing disclosed that it would raise chip prices by as much as 20%.
Consolidation in the semiconductor industry has transformed the competitive landscape, leaving a few dominant players with potential pricing power in specialized areas of the market. For example, companies with proprietary chip designs, like Broadcom, or Dutch chip-equipment manufacturer ASML, could raise their prices in an inflationary environment.
Beverages: Thirsty for leading brands
The ability to raise prices without serious backlash not only varies across industries but also within them. In the food and beverage industry, drink companies tend to pass along higher costs to consumers better than many food companies. That’s because the beverage industry is dominated by a few players with strong brand recognition.
One example is Keurig Dr Pepper, the producer of sodas and single serving coffee pods. The company has a history of pricing power, particularly for its most popular soft drinks, which include Canada Dry, Snapple and, of course, Dr Pepper.
Video games: Not just child’s play
Once considered a minor niche in the entertainment industry, video games have soared in popularity and now represent the fastest growing segment of the world’s media entertainment industry. The global gaming industry is expected to grow to $225 billion in annual revenue by 2025.
Manufacturers have recently been flexing their power to raise prices. With Microsoft and Sony introducing updates to their Xbox and PlayStation consoles, respectively, game makers have disclosed plans to raise prices on console games to help account for the cost of creating more sophisticated games.
A prime example of pricing power potential in the industry is the annual revenue from free-to-play games like Apex Legends from Electronic Arts and Fortnite, published by Epic Games. Tencent has a 40% ownership stake in Epic. Activision owns King, the publisher of popular mobile game Candy Crush. Free-to-play games generate revenue through advertising, whose rates can be increased as costs go up and through in-game purchases.
Believe it or not, players spend real money on virtual clothing, weapons and other supplies for their gaming characters. Essentially, industry leaders can set the price for such items as they please.
