Firm heterogeneity and export-domestic price differentials - A study of Taiwanese electronics products

This paper uses firm-level data to determine if there are systematic differences in the export and domestic prices charged by Taiwanese electronics producers. The analysis exploits new micro data that allow us to measure firm-level prices in both the domestic and export market for each of 30 disaggregated products in 1986 and 24 products in 1991. We find a substantial difference in the average domestic and export price of most products but trace much of the difference to heterogeneity in prices across firms in the same product market. Once this firm-level heterogeneity is accounted for, statistically significant price differences between the export and domestic market are found for seven products in 1986, with the domestic market price always being higher. The largest price differences are found for consumer electronics products where there were significant import restrictions. By 1991, when all import restrictions had been relaxed, the export-domestic price differential narrows, often substantially, for 18 of the 24 products where comparisons are possible. Statistically significant price differences are found for only one product in 1991. The pricing patterns are consistent with price discrimination in some product markets with the discrimination supported by trade restrictions that raised domestic prices. The magnitude of price variability across firms in the same product market also provides further evidence of the danger of using market-level aggregates to infer competitiveness. (C) 2001 Elsevier Science B.V, All rights reserved.