My dissertation consists of three chapters on the topic of product quality, pricing-to-market,income inequality, and oshoring. The abstracts for each of the chapter are below:
"Pricing-to-Market in Quality Dimension and Income Inequality" (Job Market Paper) Abstract This paper examines the price discrimination in the automobile industry where low-quality manufactures set price on their products according to the destinations' per-capita income levels while high-quality manufacturers set price more uniformly across destinations. A highly-tractable model is built where each firm simultaneously chooses the quality and the price to maximize its profits. The model predicts that highly productive firms not only produce higher quality products, but also price their products more uniformly across destinations. An extension that features consumer income inequality predicts that products sell at higher prices in countries with high income inequality. This result reconciles observations of high prices found in some developing countries such as China. Empirical results support the model's two key predictions: high-quality products are priced more uniformly; and countries' income inequalities affect price positively.
"Multi-Product Firm's Decision on Exporting Vertically-Differentiated Goods" Abstract This study focuses on the firms with vertically-differentiated products (products with different qualities) and studies how firms select the subset of products to enter a destination. With the goal of optimizing profit, each firm optimally chooses the range of quality-product based on destination country$^\prime$s characteristics. Defining the destination-specific range between the top and the bottom qualities as the length of the quality ladder, it is concluded that the length of the quality ladder depends on the market size of the destination country, income inequality, and the productivity of the firm. The data in the automobile industry is used in the empirical part of this study.
"Quality and Firm's Offshoring Decision"
Abstract This paper studies the offshoring decision of a firm producing a quality good. I build a model where there are two countries with different wages and each country has a probability of making mistakes. In particular, home firm had lower probability of making mistakes but has higher wage than the foreign firm. I also assume that higher quality means more stages of production (more attention to details, extra stages to perfect the product). I first show that the firm will offshore the initial basic stages and process the latter stages at home. I denote s* as the "cut-off stage" where the production cost is the same at home and in the foreign in that stage. Under the assumed functional forms, I then show that the cutoff s* is affected by the probability of making mistakes as well as the change in wages in both countries, but s* is not affected by the decision of changing the quality of the final product S. Namely, when a firm pursues higher quality of the final product (S increases), it does not change its cut-off stage and all the additional stages added to the production are processed at Home. I show that higher quality does not necessarily change the decision of offshoring, i.e. the stage allocation between home and foreign remained unchanged. But the labor requires in each stage increases with the increase of the final quality.
Publication Chi-Hung Liao (2011), "Measuring Quality in International Trade", Economic Systems, Vol. 35 Issue 1, pp. 125-138, Elsevier. link