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Are Antidumping Duties an Antidote for Predation?

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  • Stefan Lutz

    ()

  • James Gaisford

    ()

  • Shan (Victor) Jiang

Abstract

Since 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 Info

Paper provided by ICER - International Centre for Economic Research in its series ICER Working Papers with number 17-2009.

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Length: 37 pages
Date of creation: Jul 2009
Date of revision:
Handle: RePEc:icr:wpicer:17-2009

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Keywords: trade; duopoly; Stackelberg; Cournot; antidumping; predation;

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  1. James A. Brander & Barbara J. Spencer, 1980. "Tariffs and the Extraction of Foreign Monopoly Rents under Potential Entry," Working Papers 414, Queen's University, Department of Economics.
  2. 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.
  3. Avinash Dixit, 1979. "A Model of Duopoly Suggesting a Theory of Entry Barriers," Bell Journal of Economics, The RAND Corporation, vol. 10(1), pages 20-32, Spring.
  4. Thomas J. Prusa, 2001. "On the spread and impact of anti-dumping," Canadian Journal of Economics, Canadian Economics Association, vol. 34(3), pages 591-611, August.
  5. James C. Hartigan, 1996. "Predatory Dumping," Canadian Journal of Economics, Canadian Economics Association, vol. 29(1), pages 228-39, February.
  6. Hartigan, James C., 1994. "Dumping and signaling," Journal of Economic Behavior & Organization, Elsevier, vol. 23(1), pages 69-81, January.
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