That's what we mean when we say "milking". Just because you can explain something in economic terms does not make it justifiable.

You have described the market milking process very accurately.

Theres machine learning algorithms in the mix, and it all works perfectly smoothly, until it doesn't.

Smoothly here, being defined as the markets emotional feelings about it all, not, the price went up.

The price went up because it could, as you pointed out.

To add onto this: it is generally not possible for suppliers to sell below market rate. If DDR5 is going for $400/16GB, and you want to sell 16GB for $200, people are going to buy your cheap RAM until you run out and resell it for more money. This is called arbitrage, and it's the market rewarding others for being greedy where you weren't. The only way to make the price go down is to make the market's price go down: produce so much supply that you extinguish all of the arbitrage-driven demand.

There are some wrinkles to this. If CXMT's RAM was somehow inferior, then the market could sustain two different prices for two different products. But it's difficult to separate the market like this without just making unusable trash. The one separation we do have - DDR5 vs HBM - works against the consumer's favor. One layer down in the supply chain, RAM manufacturers have to buy silicon wafers to etch circuits into, and HBM takes up treble more wafer space than DDR5 per gigabyte. In fact, this is specifically the scarcity that allowed Sam Altman to engineer a RAM crisis, by buying up a bunch of wafer supply that he could then redirect to more AI-optimized HBM.

We can also infer from all of this that CXMT - while producing lots of memory - does not have the scale necessary to actually quench the inflated demand. Either because their yields are shit, or because China wants to run a business and made the same calculation as the other RAM producers that the AI bubble would pop before they could get additional equipment online to service demand.