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Antidumping as Strategic Trade Policy Under Asymmetric Information

  • Xenia Matschke

    (University of Connecticut)

  • Anja Schottner

    (University of Bonn)

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.

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Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2008-19.

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Length: 35 pages
Date of creation: Jun 2008
Date of revision: Jan 2010
Handle: RePEc:uct:uconnp:2008-19
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Web page: http://www.econ.uconn.edu/
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  1. 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, vol. 145(4), pages 597-613, January.
  2. Bruce A. Blonigen & Thomas J. Prusa, 2001. "Antidumping," NBER Working Papers 8398, National Bureau of Economic Research, Inc.
  3. 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.
  4. James A. Brander & Barbara J. Spencer, 1984. "Export Subsidies and International Market Share Rivalry," NBER Working Papers 1464, National Bureau of Economic Research, Inc.
  5. 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.
  6. 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.
  7. Dixit, Avinash, 1984. "International Trade Policy for Oligopolistic Industries," Economic Journal, Royal Economic Society, vol. 94(376a), pages 1-16, Supplemen.
  8. Dobrin R. Kolev & Thomas J. Prusa, 1999. "Dumping and Double Crossing: The (In)Effectiveness of Cost-Based Trade Policy Under Incomplete Information," NBER Working Papers 6986, National Bureau of Economic Research, Inc.
  9. 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.
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