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 differ ences in the export and domestic prices charged by Taiwanese electronics pr oducers. 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 disaggr egated products in 1986 and 24 products in 1991. We find a substantial diff erence 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, statis tically significant price differences between the export and domestic marke t are found for seven products in 1986, with the domestic market price alwa ys being higher. The largest price differences are found for consumer elect ronics products where there were significant import restrictions. By 1991, when all import restrictions had been relaxed, the export-domestic price di fferential narrows, often substantially, for 18 of the 24 products where co mparisons are possible. Statistically significant price differences are fou nd for only one product in 1991. The pricing patterns are consistent with p rice discrimination in some product markets with the discrimination support ed by trade restrictions that raised domestic prices. The magnitude of pric e variability across firms in the same product market also provides further evidence of the danger of using market-level aggregates to infer competiti veness. (C) 2001 Elsevier Science B.V, All rights reserved.