Price and Quality Dispersion in an Offshoring Market: Evidence from Semiconductor Production Services
This paper studies price and quality differences across international intermediate input suppliers. We develop price measures that account for (i) differences in product characteristics, (ii) unobserved quality differences, and (iii) pure (frictional) price dispersion across suppliers. Using uniquely detailed transaction- level data from the semiconductor industry, we document large average price differences across suppliers for observationally identical products, and find that price differentials close over the product life cycle. We interpret this finding in a model where buyers face costs of switching suppliers. The theory demonstrates how to use the observed price dynamics to adjust prices for unobserved quality differences across suppliers. The results of this analysis reveal that pure price dispersion and unobserved quality differences are both important in this market. These two features make it difficult to construct constant-quality import price indexes, which generally assume away pure price dispersion. We document the resulting upward bias in standard price indexes, develop a quality-adjusted index for semiconductor fabrication, and propose a general method for bounding the true constant-quality price index.
|Date of creation:||Nov 2013|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ana Aizcorbe, 2002. "Price measures for semiconductor devices," Finance and Economics Discussion Series 2002-13, Board of Governors of the Federal Reserve System (U.S.).
- Dennis W. Carlton, 1983. "Equilibrium Fluctuations When Price and Delivery Lag Clear the Market," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 562-572, Autumn.
- Susan N. Houseman & Christopher Kurz & Paul Lengermann & Benjamin Mandel, .
"Offshoring Bias in U.S. Manufacturing,"
Upjohn Working Papers and Journal Articles
snh20112, W.E. Upjohn Institute for Employment Research.
- Teresa C. Fort, 2013. "Breaking Up Is Hard To Do: Why Firms Fragment Production Across Locations," Working Papers 13-35, Center for Economic Studies, U.S. Census Bureau.
- Mark Doms, 2005. "Communications Equipment: What Has Happened to Prices?," NBER Chapters, in: Measuring Capital in the New Economy, pages 323-362 National Bureau of Economic Research, Inc.
- David Hummels & Jun Ishii & Kei-Mu Yi, 1999.
"The nature and growth of vertical specialization in world trade,"
72, Federal Reserve Bank of New York.
- Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, vol. 54(1), pages 75-96, June.
- Drew Fudenberg & Jean Tirole, 1983. "Learning-by-Doing and Market Performance," Bell Journal of Economics, The RAND Corporation, vol. 14(2), pages 522-530, Autumn.
- Andrew B. Bernard & Teresa C. Fort, 2013.
"Factoryless Goods Producers in the US,"
13-46, Center for Economic Studies, U.S. Census Bureau.
- AfDB AfDB, . "The AfDB Statistics Pocketbook 2012," AfDB Statistics Pocketbook, African Development Bank, number 388.
- Robert C. Feenstra & Benjamin R. Mandel & Marshall B. Reinsdorf & Matthew J. Slaughter, 2013.
"Effects of Terms of Trade Gains and Tariff Changes on the Measurement of US Productivity Growth,"
American Economic Journal: Economic Policy,
American Economic Association, vol. 5(1), pages 59-93, February.
- Robert C. Feenstra & Benjamin R. Mandel & Marshall B. Reinsdorf & Matthew J. Slaughter, 2009. "Effects of Terms of Trade Gains and Tariff Changes on the Measurement of U.S. Productivity Growth," NBER Working Papers 15592, National Bureau of Economic Research, Inc.
- Benjamin R. Mandel, 2010. "Heterogeneous firms and import quality: evidence from transaction-level prices," International Finance Discussion Papers 991, Board of Governors of the Federal Reserve System (U.S.).
- Alan T. Sorensen, 2000. "Equilibrium Price Dispersion in Retail Markets for Prescription Drugs," Journal of Political Economy, University of Chicago Press, vol. 108(4), pages 833-862, August.
- Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
- Irwin, Douglas A & Klenow, Peter J, 1994. "Learning-by-Doing Spillovers in the Semiconductor Industry," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1200-1227, December.
- Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb..
- Paul Klemperer, 1987. "The Competitiveness of Markets with Switching Costs," RAND Journal of Economics, The RAND Corporation, vol. 18(1), pages 138-150, Spring.
- To, Theodore, 1996. "Multi-period Competition with Switching Costs: An Overlapping Generations Formulation," Journal of Industrial Economics, Wiley Blackwell, vol. 44(1), pages 81-87, March.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:19637. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.