Anti-Dumping, Intra-Industry Trade and Quality Reversals

Jose Moraga-Gonzalez and Jean-Marie Viaene

No 1365, CESifo Working Paper Series from CESifo

Abstract: 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.

Keywords: anti-dumping duty; intra-industry trade; price undertaking; product quality; quality reversals (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (1)

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Working Paper: Anti-dumping, Intra-industry Trade and Quality Reversals (2004)
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