GEP Research Paper 05/21
Market size and antidumping in duopolistic competition
Rod Falvey and Sarut Wittayarungruangsri
Abstract
We consider the incentives that the existence of an Antidumping Law provides for strategic behaviour on the part of duopolistic firms selling in each other's segmented markets. Firms have identical costs, but are located in countries with different market sizes (maximum willingness to pay). In free trade the firm from the larger market dumps in the other market, providing incentives for both firms to manipulate their sales in the two markets to influence any future antidumping duty. We show that for small (large) differences in market size, the dumping (other) firm's strategic actions dominate, and the dumping margin is reduced (increased) relative to free trade. We also consider a price undertaking as an alternative to the duty, and show that the outcome depends on which firms have input into the policy choice.
Issued in September 2005.
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