Price and Quality Dispersion in an Offshoring Market: Evidence from Semiconductor Production Services

56 Pages Posted: 6 Apr 2013

See all articles by David M. Byrne

David M. Byrne

Board of Governors of the Federal Reserve System

Brian Kovak

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management

Ryan Michaels

University of Rochester - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: December 21, 2012

Abstract

We study cross-country differences in price and quality in the market for semiconductor wafer manufacturing services. Using a proprietary transaction-level data set, we document i) substantial constant-quality price differences across suppliers, and ii) shifts toward lower priced suppliers. Chinese producers on average charged 17% less than leading Taiwanese producers for otherwise identical products and increased their market share by 14.7 percentage points. The extent of cross-country price dispersion is also diminishing over a product's life. A model with costs of switching suppliers is consistent with these pricing dynamics and can sustain realistic quality-adjusted price dispersion.

Keywords: Pricing, intra-industry trade

JEL Classification: L11, F14, F61

Suggested Citation

Byrne, David M. and Kovak, Brian and Michaels, Ryan, Price and Quality Dispersion in an Offshoring Market: Evidence from Semiconductor Production Services (December 21, 2012). FEDS Working Paper No. 2013-06. Available at SSRN: https://ssrn.com/abstract=2244500 or http://dx.doi.org/10.2139/ssrn.2244500

David M. Byrne (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th and C Streets, NW
Washington, DC 20551
United States

Brian Kovak

Carnegie Mellon University - H. John Heinz III School of Public Policy and Management ( email )

Pittsburgh, PA 15213-3890
United States

Ryan Michaels

University of Rochester - Department of Economics ( email )

Harkness Hall
Rochester, NY 14627
United States

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