I just covered this a few posts up. The only reason a 10* chip will outdamage a 4* chip is largely due to elemental gain on the 10*. If you pit a 4* chip and a 10* chip against the same target where both chips do not attack the target's elemental weakness, they will both do comparable damage. The exception is techs - Tech power is also based on element ratio, so naturally because you gain more element on a 10*, you will do more damage.
The big reason why you use a 10* chip, is stat gain. You gain far more HP/CP/Element on a 10* chip than you would a 4* or 5*.
The largest factor in determining your damage, is the weapon you use, it's element, and how levelled you are compared to its requirement, since you can only use a fraction of the weapon's power if you aren't a high enough level.
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