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Entry, Dumping and Shakeout

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Author Info

  • Clarida, R.H.

Abstract

This paper investigates the relationship between entry, demand, and dumping in the context of a two country Ricardian model of international trade. Dumping - the export of goods at a price below average cost - can arise in the free trade equilibrium if the two countries differ in their initial stock of technological knowledge. As in Jovanovic (1982), I assume that firms in one of the two countries can only acquire knowledge about the technology for producing one of the goods by actually producing that good. Because all firms are ex ante identical in one of the countries, and ex post efficient firms earn positive rents in equilibrium, competition for these rents can result in entry to the point that the equilibrium price is driven below average cost. If world demand is high enough, entry among ex ante identical firms can push down the world price below the opportunity cost of production of new entrants in one country, and that country can in fact initially export the dumped good in equilibrium. Interestingly, and in contrast to models of dumping in cyclical downturns, dumping will not occur with endogenous entry if world demand is too low. Despite the fact that high world demand induces so much entry that price is driven below opportunity cost, welfare in both the dumping (exporting) country and the importing country improve in the free trade dumping equilibrium relative to autarky.

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Bibliographic Info

Paper provided by Columbia University, Department of Economics in its series Discussion Papers with number 1991_13.

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Length: 51 pages
Date of creation: 1991
Date of revision:
Handle: RePEc:clu:wpaper:1991_13

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Related research

Keywords: dumping ; competition ; international trade ; economic equilibrium;

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References

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  1. James Brander & Paul Krugman, 1980. "A "Reciprocal Dumping" Model of International Trade," Working Papers 405, Queen's University, Department of Economics.
  2. Krueger, Anne O & Tuncer, Baran, 1982. "An Empirical Test of the Infant Industry Argument," American Economic Review, American Economic Association, vol. 72(5), pages 1142-52, December.
  3. Richard Ericson & Ariel Pakes, 1992. "An Alternative Theory of Firm and Industry Dynamics," Cowles Foundation Discussion Papers 1041, Cowles Foundation for Research in Economics, Yale University.
  4. Arye L. Hillman & Eliakim Katz, 1986. "Domestic Uncertainty and Foreign Dumping," Canadian Journal of Economics, Canadian Economics Association, vol. 19(3), pages 403-16, August.
  5. Jovanovic, Boyan & Lach, Saul, 1989. "Entry, Exit, and Diffusion with Learning by Doing," American Economic Review, American Economic Association, vol. 79(4), pages 690-99, September.
  6. Bernhardt, Dan, 1984. "Dumping, adjustment costs and uncertainty," Journal of Economic Dynamics and Control, Elsevier, vol. 8(3), pages 349-370, December.
  7. Davies, Stephen W. & McGuinness, Anthony J., 1982. "Dumping at less than marginal cost," Journal of International Economics, Elsevier, vol. 12(1-2), pages 169-182, February.
  8. A. M. Spence, 1981. "The Learning Curve and Competition," Bell Journal of Economics, The RAND Corporation, vol. 12(1), pages 49-70, Spring.
  9. Gruenspecht, Howard K., 1988. "Dumping and dynamic competition," Journal of International Economics, Elsevier, vol. 25(3-4), pages 225-248, November.
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Citations

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Cited by:
  1. Meredith A. Crowley, 2002. "Do safeguard tariffs and antidumping duties open or close technology gaps?," Working Paper Series WP-02-13, Federal Reserve Bank of Chicago.
  2. Petrakis, E. & Rasmusen, E. & Roy, S., 1994. "The Learning Curve in a Competitive Industry," Papers 94-004, Indiana - Center for Econometric Model Research.
  3. Meredith A. Crowley, 2001. "Antidumping policy under imperfect competition," Working Paper Series WP-01-21, Federal Reserve Bank of Chicago.
  4. Miyagiwa, Kaz & Ohno, Yuka, 2007. "Dumping as a signal of innovation," Journal of International Economics, Elsevier, vol. 71(1), pages 221-240, March.
  5. Gallaway, Michael P. & Blonigen, Bruce A. & Flynn, Joseph E., 1999. "Welfare costs of the U.S. antidumping and countervailing duty laws," Journal of International Economics, Elsevier, vol. 49(2), pages 211-244, December.
  6. Meredith Crowley, 2007. "Cyclical dumping and U.S. antidumping protection: 1980-2001," Working Paper Series WP-07-21, Federal Reserve Bank of Chicago.
  7. Falvey, Rod & Wittayarungruangsri, Sarut, 2006. "Market size and antidumping in duopolistic competition," European Journal of Political Economy, Elsevier, vol. 22(3), pages 771-786, September.
  8. Alfonso Mendieta, 2005. "Alternative Effects of Antidumping Policy: Should Mexican Authorities be Worried?," Economia Mexicana NUEVA EPOCA, , vol. 0(1), pages 41-69, January-J.

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