The Chain Effect of an Antidumping Policy

This article uses a successive duopoly model to show that some antidumping retaliation may in fact be a chain effect of an antidumping policy. Findings present that if dumping initially takes place in the home country's final good market, then antidumping protection in the final good market will result in dumping in the foreign country's input market, thus leading to further antidumping protection, which will reinforce the incentive of the home downstream firm to initially petition for antidumping protection. Moreover, we demonstrate that an antidumping duty in vertically related markets may not provide this industry with adequate protection. Finally, when taking the antidumping chain effect into account, we show that the government which initially faces the dumping may determine a higher antidumping duty if the production inefficiency of the home upstream firm relative to the foreign upstream firm is in the medium range.