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Why are semiconductor prices falling so fast? Industry estimates and implications for productivity measurement

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  • Ana Aizcorbe

Abstract

By any measure, price deflators for semiconductors fell at a staggering pace over much of the last decade. These rapid declines are typically attributed to technological innovations that lower constant-quality manufacturing costs. But, given Intel's dominance in the microprocessor market, those price declines may also reflect changes in Intel's profit margins. Disaggregate data on Intel's operations are used to explore these issues. There are three basic findings. First, the industry data show that Intel's markups from its microprocessor segment shrank substantially from 1993-99. Second, about 3-1/2 percentage points of the average 24 percent price decline in a price index for Intel's chips can be attributed to declines in these profit margins over this period. And, finally, the data suggest that virtually all of the remaining price declines can be attributed to quality increases associated with product innovation.

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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2002-20.

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Date of creation: 2002
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Handle: RePEc:fip:fedgfe:2002-20

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Related research

Keywords: Semiconductor industry ; Prices ; Technological innovations;

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Cited by:
  1. Park, Sangin, 2009. "An empirical evaluation of the 1986 Semiconductor Trade Arrangement," Japan and the World Economy, Elsevier, vol. 21(4), pages 349-357, December.
  2. Ho, Mun & Jorgenson, Dale & Stiroh, Kevin, 2002. "Projecting Productivity Growth: Lessons from the U.S. Growth Resurgence," Discussion Papers dp-02-42, Resources For the Future.
  3. Stephen D. Oliner & Daniel E. Sichel, 2002. "Information technology and productivity: where are we now and where are we going?," Economic Review, Federal Reserve Bank of Atlanta, issue Q3, pages 15-44.
  4. Jorgenson, Dale W. & Ho, Mun S. & Stiroh, Kevin J., 2003. "Lessons from the US growth resurgence," Journal of Policy Modeling, Elsevier, vol. 25(5), pages 453-470, July.
  5. Ana Aizcorbe & Samuel Kortum, 2005. "Moore's Law and the Semiconductor Industry: A Vintage Model," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(4), pages 603-630, December.
  6. Ana Aizcorbe, 2005. "Product Introductions and Price Measures for Microprocessor Chips in the 1990s," Industrial Organization 0502004, EconWPA.
  7. Bart Hobijn, 2002. "On both sides of the quality bias in price indexes," Staff Reports 157, Federal Reserve Bank of New York.
  8. Nicholas Oulton, 2004. "A statistical framework for the analysis of productivity and sustainable development," LSE Research Online Documents on Economics 19963, London School of Economics and Political Science, LSE Library.
  9. Dale W. Jorgenson & Mun S. Ho & Kevin J. Stiroh, 2003. "Lessons for Canada from the U.S. Growth Resurgence," International Productivity Monitor, Centre for the Study of Living Standards, vol. 6, pages 3-18, Spring.
  10. Dean Parham, 2002. "Productivity and Policy Reform in Australia," International Productivity Monitor, Centre for the Study of Living Standards, vol. 5, pages 53-63, Fall.
  11. Oliner, Stephen D. & Sichel, Daniel E., 2005. "Les technologies de l’information et la productivité : situation actuelle et perspectives d’avenir," L'Actualité Economique, Société Canadienne de Science Economique, vol. 81(1), pages 339-400, Mars-Juin.
  12. Ana Aizcorbe, 2005. "Moore's Law, Competition, and Intel's Productivity in the Mid-1990s," American Economic Review, American Economic Association, vol. 95(2), pages 305-308, May.
  13. Ana Aizcorbe, 2005. "Moore's Law, Competition and Intel's Productivity in the 1990s," Industrial Organization 0502003, EconWPA.

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