Anti-dumping, Intra-industry Trade and Quality Reversals

Jose Moraga-Gonzalez and Jean-Marie Viaene
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Jean-Marie Viaene: Erasmus Universiteit Rotterdam, the Netherlands

No 04-124/2, Tinbergen Institute Discussion Papers from Tinbergen Institute

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.

Keywords: anti-dumping duty; intra-industry trade; price undertaking; product quality; quality reversals (search for similar items in EconPapers)
JEL-codes: F12 F13 (search for similar items in EconPapers)
Date: 2004-11-18
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Working Paper: Anti-Dumping, Intra-Industry Trade and Quality Reversals (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:tin:wpaper:20040124

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