Are Antidumping Duties an Antidote for Predation?
AbstractSince price discrimination and selling below cost arise in the normal course of business and are usually legal for home firms, countering these practices by foreign firms provides a very weak rationale for antidumping duties. If antidumping duties were to provide a systematic defense against predation by foreign firms, however, a strong ''fair-trade'' justification would remain. This paper adapts the classic entry-deterrence analysis of Dixit (1979) and Brander and Spencer (1981) to provide a simple treatment of predation, which is applicable with price leadership as well as quantity leadership. Although situations of cross-border predation appear to be quite rare, foreign firms may sometimes find themselves in leadership positions if they have to make shipments and/or set prices before their home rivals. This paper shows that, in the context of such an international leadership game, predation ma y occur without dumping and vice versa. Further, when dumping and predation do coexist, a sophisticated form of antidumping duty would prevent predation, but the simple antidumping duties that are generally observed in practice will often be insufficient. Consequently, the paper challenges the ''fair-trade'' view of antidumping policy as an antidote for predation and strengthens the foundation of the counter-argument that antidumping constitutes a new insidious form of protectionism and trade harassment, which is of particularly serious concerns for small countries.
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Bibliographic InfoPaper provided by ICER - International Centre for Economic Research in its series ICER Working Papers with number 17-2009.
Length: 37 pages
Date of creation: Jul 2009
Date of revision:
trade; duopoly; Stackelberg; Cournot; antidumping; predation;
Other versions of this item:
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-08-08 (All new papers)
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- James A. Brander & Barbara J. Spencer, 1980.
"Tariffs and the Extraction of Foreign Monopoly Rents under Potential Entry,"
414, Queen's University, Department of Economics.
- James A. Brander & Barbara J. Spencer, 1981. "Tariffs and the Extraction of Foreign Monopoly Rents under Potential Entry," Canadian Journal of Economics, Canadian Economics Association, vol. 14(3), pages 371-89, August.
- Thomas J. Prusa, 1999.
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Departmental Working Papers
199916, Rutgers University, Department of Economics.
- Baldwin, Richard E., 1994. "The impact of the 1986 US--Japan semiconductor agreement," Japan and the World Economy, Elsevier, vol. 6(2), pages 129-152, June.
- James C. Hartigan, 1996. "Predatory Dumping," Canadian Journal of Economics, Canadian Economics Association, vol. 29(1), pages 228-39, February.
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