DP2624 European Antidumping Policy and Firms' Strategic Choice of Quality

Author(s): Hylke Vandenbussche, Xavier Wauthy
Publication Date: November 2000
Keyword(s): Bertrand Competition, European Antidumping Policy, Injury, Quality, Welfare
JEL(s): F13, L13
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2624

In this paper, we consider a European industry characterized by vertical product differentiation. Using a two-stage model with quality choice made before price competition takes place, we show that EU anti-dumping policy that takes the form of price-undertakings offers a powerful protection to domestic firms, but only at the price competition stage. Once the impact of the A-D policy on quality choices is taken into account, European Welfare as well as profits accruing to the domestic firm decrease whenever the free trade equilibrium is affected. Hence we show that European Antidumping policies may induce ?perverse? leapfrogging.