Market segmentation = Money grab = The goal of everyone
(non-MBA guy here so I could be talking out of my ass)
The way I see it, I have a good CPU that I want to sell it for $200, a competitive price. My competitor then sells a cheaper but worse CPU at $50, but it's "good enough" for the people who want to save money. I want all that money too. But if I change my price to $50, then I'm losing all the money from the people who were willing to spend $200. Do I waste a ton of money to get another engineering team to make a cheaper version of the chip? Would I get enough ROI (cheaper to produce, lower power etc...) to justify the extra development time? Maybe...
For when it doesn't make sense, I take my chip, disable some stuff, lock in lower frequencies, fuse off some caches and sell that version at $50. That way the cheapies in the world can buy my chip at $50 because it's "good enough". And then there's enough added value in the "premium" version for people to spend the extra $150.
Edit: I saw this in another thread and it said it best. You can look at it two ways. You can think it as either "you're robbing me of features that should be mine" or "you're allowing people who can only spend $50 to actually buy something"
Interesting that you would reference the "non-MBA" factor. Richard Wolff is a professor of Economics -- now at the "New School," but he had taught for some years of U of Mass Amherst. He has a different focus of problems than we discuss here, but had noted there are really "two Economics departments" in most universities -- the second one being the "business school." In the history of economic thought, there had been a term used called "krenelistics," which meant the use of economic knowledge purely for personal gain.
But back to Intel. There are various types of "market imperfection" in the inventory of economic models of how things work. In the extreme, there is monopoly, which often involves "barriers to entry" to prospective competitors. Then there is the "dominant firm" model. These firms expect entry here or there by their competition, but they pretty much call the shots. If Intel isn't a dominant firm, it is more like the dominant half of a duopoly (which would include AMD).
Product differentiation was an approach followed by the auto industry. There are plenty of examples of it. But product differentiation is also much like "price-discrimination" -- a form of monopoly. The classic example you would never think of otherwise appears as your independent small-town MD general practitioner. Like Robin Hood, he may charge his wealthier patients more and his more desperate patients less for the same service. But this isn't quite what Intel is doing, although the impact on profit is the same.
Back around 1998 give or take a year, Intel produce the "Pentium II" processor line. Federal Trade Commission had been all over Intel for a good while -- gathering "intelligence." It was later discovered that Intel was running the PII 250, 300 and 350(?) off the same assembly-line, and then disabling the output in segments to meet those three specs. Eventually, someone in the Philippines discovered how to re-enable those chips and sell them as the more expensive model for a higher price -- a form of counterfeiting. [And I got one of those processors, too . . .] It is doubtful to me that there was ever any legal culpability of Intel for doing this.
But go figure. Imagine the downward-sloping demand curve, and its intersection with upward-sloping supply. There is an area to the left of the intersection called "consumer surplus," which figures into monopoly profit. If I can sell a differentiated (but identically manufactured) product to one market segment for a higher price, and a lesser identically manufactured product to another segment at a lower price, I reap more profit, taking away with me the consumer surplus.
So you can have a Cadillac or an Oldsmobile. Maybe later, you find out that they have the same engine.
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