Working Paper: CEPR ID: DP387
Authors: Richard E. Baldwin
Abstract: The semiconductor arrangement was intended to enhance free trade based on market principles. This paper argues that the arrangement had exactly the opposite effect. The arrangement has two parts: a price floor to prevent predatory pricing, and provisions to double U.S. market share in Japan to counter market closure. Given semiconductor production technology, the price floor forced a capacity reduction, a rise in world prices and a cartelization of the market. Since the observed dumping was probably not predatory pricing, the price floor restricted competition and free trade. The market closure probably exists and significantly harms non-Japanese producers. It is therefore an anti-competitive practice.
Keywords: semiconductor industry; trade restrictions; market access restrictions; learning curves
JEL Codes: 421; 422
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| price floor (D41) | reduction in production capacity (D24) |
| reduction in production capacity (D24) | rise in world prices for semiconductors (F69) |
| price floor (D41) | rise in world prices for semiconductors (F69) |
| price floor (D41) | cartelization of the market (L12) |
| lack of compliance with market access provisions (F13) | failure of intended causal effects (C90) |
| US-Japan semiconductor arrangement (L63) | anticompetitive practices (L41) |
| observed dumping by Japanese firms (F18) | rational response to market conditions (G19) |