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Antidumping as Strategic Trade Policy Under Asymmetric Information

Author

Listed:
  • Xenia Matschke

    (University of Connecticut)

  • Anja Schottner

    (University of Bonn)

Abstract

In the last two decades, trade liberalization under GATT/WTO has been partly offset by an increase in antidumping protection. Economists have argued convincingly that this is partly due to the inclusion of sales below cost in the definition of dumping during the GATT Tokyo Round. The introduction of the cost- based dumping definition gives regulating authorities a better opportunity to choose protection according to their liking. This paper investigates the domestic government's antidumping duty choice in an asymmetric information framework where the foreign firm's cost is observed by the domestic firm, but not by the government. To induce truthful revelation, the government can design a tariff schedule, contingent on firms' cost reports, accompanied by a threat to collect additional information for report verification (i.e., auditing) and, in case misreporting is detected, to set penalty duties. We show that depending on the concrete assumptions, the domestic government may not only be able to extract the true cost information, but also succeeds in implementing the full-information, governmental welfare-maximizing duty. In this case, the antidumping framework within GATT/WTO does not only offer the means to pursue strategic trade policy disguised as fair trade policy, but it also helps overcome the informational problems with regard to correctly determining the optimal strategic trade policy.

Suggested Citation

  • Xenia Matschke & Anja Schottner, 2008. "Antidumping as Strategic Trade Policy Under Asymmetric Information," Working papers 2008-19, University of Connecticut, Department of Economics, revised Jan 2010.
  • Handle: RePEc:uct:uconnp:2008-19
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    References listed on IDEAS

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    1. Bruce A. Blonigen, 2006. "Evolving discretionary practices of U.S. antidumping activity," Canadian Journal of Economics, Canadian Economics Association, vol. 39(3), pages 874-900, August.
    2. Dobrin R. Kolev & Thomas J. Prusa, 2002. "Dumping and Double Crossing: The (In)Effectiveness of Cost-Based Trade Policy under Incomplete Information," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 43(3), pages 895-918, August.
    3. Barbara J. Spencer & James A. Brander, 1982. "Tariff Protection and Imperfect Competition," Working Papers 517, Queen's University, Department of Economics.
    4. Leonard K. Cheng & Larry D. Qiu & Kit Pong Wong, 2001. "Anti-dumping measures as a tool of protectionism: A mechanism design approach," Canadian Journal of Economics, Canadian Economics Association, vol. 34(3), pages 639-660, August.
    5. Michael Moore & Alan Fox, 2010. "Why don’t foreign firms cooperate in US antidumping investigations? An empirical analysis," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 145(4), pages 597-613, January.
    6. Dixit, Avinash, 1984. "International Trade Policy for Oligopolistic Industries," Economic Journal, Royal Economic Society, vol. 94(376a), pages 1-16, Supplemen.
    7. Philippe Kohler & Michael O. Moore, 2001. "Injury-Based Protection with Auditing under Imperfect Information," Southern Economic Journal, Southern Economic Association, vol. 68(1), pages 42-59, July.
    8. Brander, James A., 1995. "Strategic trade policy," Handbook of International Economics,in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 27, pages 1395-1455 Elsevier.
    9. Bruce A. Blonigen & Thomas J. Prusa, 2001. "Antidumping," NBER Working Papers 8398, National Bureau of Economic Research, Inc.
    10. Brander, James A. & Spencer, Barbara J., 1985. "Export subsidies and international market share rivalry," Journal of International Economics, Elsevier, vol. 18(1-2), pages 83-100, February.
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    Cited by:

    1. Kaz Miyagiwa & Huasheng Song & Hylke Vandenbussche, 2016. "Accounting for Stylised Facts about Recent Anti-dumping: Retaliation and Innovation," The World Economy, Wiley Blackwell, vol. 39(2), pages 221-235, February.
    2. Phillip McCALMAN & Frank STÄHLER & Gerald WILLMANN, 2011. "Contingent trade policy and economic efficiency," Working Papers Department of Economics ces11.05, KU Leuven, Faculty of Economics and Business, Department of Economics.

    More about this item

    Keywords

    antidumping duties; asymmetric information; trade protection; strategic trade policy.;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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