Antidumping Policy

We examine antidumping policy in a model where a foreign firm is a monopolist in the foreign market, but competes with a native firm in the home market. An antidumping policy changes strategic behavior by giving firms an incentive to manipulate the price differential between home and foreign markets. Under quantity-setting behavior, an antidumping policy often improves the home country's welfare. The welfare of the foreign country may also improve. Under price setting behavior, an antidumping policy worsens the home country's welfare unless the foreign firm has a large cost advantage [or unless entry occurs]. The foreign country often suffers a welfare loss, although this result may be reversed when firms produce imperfect substitutes.