Anti-Dumping, Intra-Industry Trade and Quality Reversals

34 Pages Posted: 10 Jan 2005

See all articles by José L. Moraga-González

José L. Moraga-González

VU University Amsterdam; University of Groningen

Jean-Marie Viaene

Erasmus University

Date Written: December 2004

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

JEL Classification: F12, F13

Suggested Citation

Moraga-Gonzalez, Jose Luis and Viaene, Jean-Marie, Anti-Dumping, Intra-Industry Trade and Quality Reversals (December 2004). Available at SSRN: https://ssrn.com/abstract=624541

Jose Luis Moraga-Gonzalez (Contact Author)

VU University Amsterdam ( email )

De Boelelaan 1105
1081 HV Amsterdam
Netherlands

HOME PAGE: http://www.tinbergen.nl/~moraga/

University of Groningen

P.O. Box 800
9700 AV Groningen, Groningen 9700 AV
Netherlands

Jean-Marie Viaene

Erasmus University ( email )

P.O. Box 1738
3000 DR Rotterdam
Netherlands

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