Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/18728
Authors: 
Moraga-González, José Luis
Viaene, Jean-Marie
Year of Publication: 
2004
Series/Report no.: 
CESifo Working Paper 1365
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.
Subjects: 
anti-dumping duty
intra-industry trade
price undertaking
product quality
quality reversals
JEL: 
F13
F12
Document Type: 
Working Paper

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