Dumping in a Global World: Why Product Quality Matters
The World Economy , Volume 28 - Issue 5 p. 669- 682
Anti-dumping actions are now the trade policy of choice of developing and transition economies. To understand why these economies have increasingly applied anti-dumping laws, we build a simple theoretical model of vertical intra-industry trade and investigate the strategic incentives of exporting firms to undertake dumping. We show that the definition of dumping matters. Based on a comparison of low-quality and high-quality prices, only unilateral dumping by the low-quality firm obtains. By contrast, the standard WTO definition leads to either reciprocal or unilateral dumping by the high-quality firm, depending on cross-country differences in incomes, the height of tariff protection and on exchange rate changes.