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

  • David M. Byrne
  • Brian K. Kovak
  • Ryan Michaels

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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Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series Finance and Economics Discussion Series with number 2013-06.

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Date of creation: 2013
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Handle: RePEc:fip:fedgfe:2013-06
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