Cost asymmetry, commodity taxes and antidumping policies

We examine how the presence of a commodity tax affects the superiority of an antidumping duty and a price undertaking policy under cost asymmetry between the foreign and domestic firms. We obtain several interesting results as follows. First, the domestic welfare under a price undertaking is higher than that under an antidumping duty, if the domestic firm is more efficient than the foreign firm and the normal value is large. Second, the presence of a commodity tax usually leads the domestic government to be more likely to choose an antidumping duty. Third, the presence of a commodity tax leads the foreign firm to prefer a price undertaking to an antidumping duty. The first two results show that the domestic firm's lower efficiency and the commodity tax can explain why the cases involving adopting a price undertaking are far fewer than those concerned with an antidumping duty in the real world.