"Demand destruction" doesn't literally mean all demand is destroyed; it refers to the demand curve you reference. But as a sibling commenter notes, real business is rarely as clean as an econ textbook. In the real world, a supplier can contract to supply more units than they can actually produce. Their customers rely on the representation to make other related deals. And of course, the supplier can book the contracted revenue, causing investors to rely on the forward sales. They can't raise the price at that point, it's fixed in the contract. So if it turns out they physically can't deliver when the time comes, some number of the deals have to be blown up, causing related deals to blow up, etc., etc. That is the risk I was referring to.
Or: Supply and demand oscillate in a delayed way based on each other. A quick increase or decrease in one side takes time to ripple, and by the time it does, the organization may have reversed course.
An airline overbooks flights. Lots of people get their flights cancelled. Takes six months for the fallout to settle where everyone who got burned booked their future flights on a different airline. 3 months out the airline has to cut the number of flights and cut prices in the face of falling revenue to reclaim market share. As soon as they do that, they're flooded with too many bookings. So they take the bookings and overbook flights again, but it takes time to bring the new flights online.
It's not a 1:1 situation. Each time you miss the market you wobble a little further until all the inefficiencies of bad predictions eat you up.
No one has claimed that. Only that there is a risk that semiconductor manufacturers will be incentivized to overcommit, resulting in collateral economic damage when they fail to deliver.
> In the real world, a supplier can contract to supply more units than they can actually produce.
Did this actually happen though? Is there any evidence or you are just imagining a scenario which if it did happen could lead to the scenario you outlined?
Yes, it happens all the time. Sometimes it's actual fraud, sometimes it happens due to unforeseen supply chain issues. Sometimes it's a gray area in between, where production is possible but the supplier hides relevant risks in order to secure the deal.
Several examples can be found in lists of supply chain disasters, eg the 1995 Apple production shortfall:
