Learning about Enforcement: A Model of Dumping

Learning about Enforcement: A Model of Dumping

We study the effects of uncertainty about the intensity of enforcement of antidumping regulations. The desire to avoid penalties alters the foreign firm`s behavior. In the first period of a two period model, domestic and foreign firms have common beliefs that the government is a strong enforcer of antidumping regulations. After observing whether a penalty has occurred, firms update their subjective probabilities and adjust their behavior. In the first period firms act strategically to manipulate the information received by the foreign firm. The effect of this information on the choice variables depends on second order properties of the second period value junction.