Working Paper: NBER ID: w21074
Authors: David M. Byrne; Stephen D. Oliner; Daniel E. Sichel
Abstract: The Producer Price Index (PPI) for the United States suggests that semiconductor prices have barely been falling in recent years, a dramatic contrast from the rapid declines reported from the mid-1980s to the early 2000s. This slowdown in the rate of decline is puzzling in light of evidence that the performance of microprocessor units (MPUs) has continued to improve at a rapid pace. Roughly coincident with the shift to slower price declines in the PPI, Intel — the leading producer of MPUs — substantially changed its pricing behavior for these chips. As a result of this change, we argue that the matched-model methodology used in the PPI for MPUs likely started to be biased in the mid-2000s and that hedonic indexes can provide a more accurate measure of price change since then. Our preferred hedonic index of MPU prices tracks the PPI closely through 2004. However, from 2004 to 2008, our preferred index fell faster than the PPI, and from 2008 to 2013 the gap widened further, with our preferred index falling at an average annual rate of 43 percent, while the PPI declined at only an 8 percent rate. Given that MPUs currently represent about half of U.S. shipments of semiconductors, this difference has important implications for gauging the rate of innovation in the semiconductor sector.
Keywords: semiconductor prices; microprocessor units; price index; hedonic index; innovation
JEL Codes: E01; E31; E66; L16; L63; N12; N72; O33
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Intel's pricing strategy (D49) | PPI's ability to accurately reflect price trends (E30) |
| Intel's pricing behavior before mid-2000s (L11) | significant price declines (E30) |
| Intel's pricing behavior after mid-2000s (D40) | slower rate of price decline in the PPI (E31) |
| Hedonic indexes (C43) | more accurate measure of price changes (E30) |
| PPI (E31) | slower reported declines (P27) |
| Measurement methodology (C80) | observed price trends (E30) |