Are Antidumping Duties an Antidote for Predation? Draft

Since price discrimination and selling below cost arise in the normal course of business and are usually legal for domestic firms, countering these practices by foreign firms provides a very weak rationale for antidumping duties. If antidumping duties were to provide a systematic defense against predation by foreign firms, however, a strong “fair-trade” justification would remain. This paper adapts the classic entry-deterrence analysis of Dixit (1979) and Brander and Spencer (1981) to provide a simple treatment of predation, which is applicable with price leadership as well as quantity leadership. Although situations of cross-border predation appear to be quite rare, foreign firms may sometimes find themselves in leadership positions if they have to make shipments and/or set prices before their domestic rivals. This paper shows that, in the context of such an international leadership game, predation may occur without dumping and visa versa. Further, when dumping and predation do coexist, a sophisticated form of anti-dumping duty would prevent predation, but the simple anti-dumping duties that are generally observed in practice will often be insufficient. Consequently, the paper challenges the “fair-trade” view of antidumping policy as an antidote for predation and strengthens the foundation of the counter-argument that antidumping constitutes a new insidious form of protectionism and trade harassment, which is of particularly serious concerns for small countries. ∗Corresponding author: Professor of Economics, University of Calgary. Address: Department of Economics, 2500 University Drive NW, Calgary, Alberta CANADA T2N 1N4. Phone: 1-403-220-3157. Fax: 1-403-282-5262. E-mail: [email protected] †PhD Candidate, University of Calgary ‡Research Fellow, University of Manchester and University of Bonn