Anti-dumping Laws and Oligopolistic Trade

Anti-dumping Laws and Oligopolistic Trade

We study the effect of anti-dumping laws in a differentiated products quantity-setting oligopoly. Dumping may or may not occur in the model and may or may not be reciprocal. We show that the effect of adopting an anti-dumping policy on the welfare of the importing country is ambiguous. It can even lead to an increase in the consumers` surplus in the importing country. Hence the importing country may in some cases find strong reasons for the adoption of an anti-dumping policy. We then study the endogenous determination of the equilibrium anti-dumping policies in a two-stage game with reciprocal dumping in which the two governments simultaneously choose anti-dumping policies in a first stage. We provide a sufficient condition, relating the degree of substitutability in demand between the two goods and transport cost, in order for each country to have an incentive to deviate unilaterally from free trade in the presence of anti-dumping laws. We show that governments acting cooperatively to maximize world welfare should choose to endorse the institution of antidumping laws. (JEL Classification: F12, F13, L13)