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Moraga-Gonzalez, Jose Luis
Viaene, Jean-Marie
Year of Publication: 
Series/Report no.: 
Tinbergen Institute Discussion Paper 04-124/2
We examine an export game where two firms (home and foreign), located in two differentcountries, produce vertically differentiated products. The foreign firm is the most efficientin terms of R&D costs of quality development and the foreign country is relatively larger andendowed with a relatively higher income. The unique (risk-dominant) Nash equilibrium involvesintra-industry trade where the foreign producer manufactures a good of higher quality thanthe domestic firm. This equilibrium is characterized by unilateral dumping by the foreignfirm 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' costasymmetries are low and countries differ substantially in size, a PU leads to a quality reversalin the international market, which gives a rationale for the domestic government to enact ADlaw. We also establish an equivalence result between the effects of an AD duty and a PU.
anti-dumping duty
intra-industry trade
price undertaking
product quality
quality reversals
Document Type: 
Working Paper
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