Template-Type: ReDIF-Paper 1.0 Series: Tinbergen Institute Discussion Papers Creation-Date: 2004-11-18 Number: 04-124/2 Author-Name: Jose Luis Moraga-Gonzalez Author-Workplace-Name: Groningen University, and VU University Amsterdam, the Netherlands Author-Name: Jean-Marie Viaene Author-Workplace-Name: Erasmus Universiteit Rotterdam, the Netherlands Title: Anti-dumping, Intra-industry Trade and Quality Reversals 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. Classification-JEL: F12; F13 Keywords: anti-dumping duty; intra-industry trade; price undertaking; product quality; quality reversals File-Url: http://papers.tinbergen.nl/04124.pdf File-Format: application/pdf File-Size: 997164 bytes Handle: RePEc:tin:wpaper:20040124