Protecting the Domestic Market: Industrial Policy and Strategic Firm Behaviour
AbstractForeign firms to break into a new market commonly undercut domestic prices and, hence, subsidise the consumer's costs of switching in order to get a positive market share. However, this may constitute the act of dumping as drawn in Article VI of the General Agreement on Tariffs and Trade (GATT). Consequently, domestic firms trying to protect themselves against potential competitors often demand an anti-dumping (AD) investigation. In a two-period model of market entry with horizontally differentiated products and exogenous switching costs, it is demonstrated that the mere existence of switching costs and AD-rules may result in an anti-competition effect: the administratively set minimum-price rule protects the domestic firm and yields larger prices. Therefore, there are some consumers who will not buy either product in both periods although they would have done so in absence of AD. Consequently, competition policy should reassess the AD-regulation.
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Bibliographic InfoPaper provided by The Center for the Study of Rationality, Hebrew University, Jerusalem in its series Discussion Paper Series with number dp467.
Length: 24 pages
Date of creation: Oct 2007
Date of revision:
Industrial Policy; Anti-Dumping; Hotelling; Switching Costs; Market Entry;
Other versions of this item:
- Jens Metge, 2007. "Protecting the Domestic Market: Industrial Policy and Strategic Firm Behaviour," Levine's Bibliography 122247000000001644, UCLA Department of Economics.
- Jens Metge, 2007. "Protecting the Domestic Market: Industrial Policy and Strategic Firm Behaviour," Levine's Bibliography 122247000000001622, UCLA Department of Economics.
- NEP-ALL-2007-11-10 (All new papers)
- NEP-COM-2007-11-10 (Industrial Competition)
- NEP-CSE-2007-11-10 (Economics of Strategic Management)
- NEP-MIC-2007-11-10 (Microeconomics)
- NEP-REG-2007-11-10 (Regulation)
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