We consider the impact of domestic antidumping law in a two-country
partial equilibrium model where domestic and foreign firms tacitly collude
in the domestic market. Firms engage in an infinitely repeated game, with
each period composed of a two-stage game. In the first stage each firm
chooses capacity before stochastic domestic demand is realized. In the
second stage, after demand is realized, each firm then sets price. We show
that the introduction of domestic antidumping law typically leads to the
filing of antidumping suits by the domestic industry in low demand states.
and to more successful collusion and greater market share for domestic firms
during periods of low demand as a result. This occurs in spite of the fact
that antidumping duties are never actually imposed. That is, the entire
effect of antidumptng law comes in the form of a threat to punish foreign
firma with a duty j they should "misbehave." Such a threat is made
credible by filing a suit and, because it is credible, never has to be
implemented. We conclude that the trade-restricting effects of antidumping
law may have little to do with whether duties are actually imposed.
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