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Anti-dumping, Intra-industry Trade and Quality Reversals

Author

Listed:
  • Jose Luis Moraga-Gonzalez

    (Groningen University, and VU University Amsterdam, the Netherlands)

  • Jean-Marie Viaene

    (Erasmus Universiteit Rotterdam, the Netherlands)

Abstract

This discussion paper has been published in the International Economic Review , 2015, 56(3), 777-803. We examine an export game where two firms (home and foreign), located in two different countries, produce vertically differentiated products. The foreign firm is the most efficient in terms of R&D costs of quality development and the foreign country is relatively larger and endowed with a relatively higher income. The unique (risk-dominant) Nash equilibrium involves intra-industry trade where the foreign producer manufactures a good of higher quality than the domestic firm. This equilibrium is characterized by unilateral dumping by the foreign firm into the domestic economy. Two instruments of anti-dumping (AD) policy are examined,namely, a price undertaking (PU) and an anti-dumping duty. We show that, when firms' cost asymmetries are low and countries differ substantially in size, a PU leads to a quality reversal in the international market, which gives a rationale for the domestic government to enact AD law. We also establish an equivalence result between the effects of an AD duty and a PU.

Suggested Citation

  • Jose Luis Moraga-Gonzalez & Jean-Marie Viaene, 2004. "Anti-dumping, Intra-industry Trade and Quality Reversals," Tinbergen Institute Discussion Papers 04-124/2, Tinbergen Institute.
  • Handle: RePEc:tin:wpaper:20040124
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    References listed on IDEAS

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    4. Krishna, Kala, 1987. "Tariffs versus quotas with endogenous quality," Journal of International Economics, Elsevier, vol. 23(1-2), pages 97-112, August.
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    More about this item

    Keywords

    anti-dumping duty; intra-industry trade; price undertaking; product quality; quality reversals;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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