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Price and quality dispersion in an offshoring market: evidence from semiconductor production services

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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.

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  • David M. Byrne & Brian K. Kovak & Ryan Michaels, 2013. "Price and quality dispersion in an offshoring market: evidence from semiconductor production services," Finance and Economics Discussion Series 2013-06, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2013-06
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    Cited by:

    1. Morikawa, Masayuki, 2016. "Factoryless goods producers in Japan," Japan and the World Economy, Elsevier, vol. 40(C), pages 9-15.
    2. Phillip McCalman & Alan Spearot, 2015. "Relaxing CAFE: Foreign direct investment, NAFTA and domestic product standards," Canadian Journal of Economics, Canadian Economics Association, vol. 48(5), pages 1944-1974, December.
    3. Ryan Monarch, 2014. ""It's Not You, It's Me": Breakup In U.S.-China Trade Relationships," Working Papers 14-08, Center for Economic Studies, U.S. Census Bureau.

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    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F61 - International Economics - - Economic Impacts of Globalization - - - Microeconomic Impacts
    • L63 - Industrial Organization - - Industry Studies: Manufacturing - - - Microelectronics; Computers; Communications Equipment

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