Goodwill and Antidumping in Duopolistic Competition

Purpose This article demonstrates the possibility that a firm may exploit an antidumping regulation to reduce competition in its domestic market by deterring a rival firm’s goodwill investment. Design/Methodology/Approach This paper develops a simple two-period model in which duopolistic firms compete in two segmented markets (home and foreign). In the current model setting, the two firms always have identical goodwill stocks in the foreign market, but the foreign firm has a lower level of goodwill in the home market in the first period. If the foreign firm can increase its future goodwill stock by increasing current export volumes, it will dump in the home market initially. Findings This paper shows that for large differences in goodwill stock, the home firm can strategically use an antidumping regulation to mitigate competition in the home market, and can consequently increase total profit. Total trade falls since both firms export less and sell more in their domestic markets compared to free trade. Research Implications This study provides one possible explanation about the fact that antidumping duties have become prevalent as protective measures in North-South trade