Antidumping laws affect both domestic and foreign firms' profitability and domestic and foreign consumers' welfare through their effects on foreign firms' pricing policies. In Discussion Paper No. 731, Simon Anderson, Nicolas Schmitt and Research Fellow Jacques-François Thisse develop a model of imperfect competition between two `national' firms to assess the effects of such laws. They find that profits fall when antidumping legislation applies in both countries; if only one country imposes antidumping laws, however, its firm's profits are greater than either those of the foreign firm or its own profits under bilateral laws. Domestic consumer welfare is highest with antidumping laws, however, when only the foreign country imposes them, and lowest when only the home country does so. Consumers fare better with bilateral antidumping laws than with none. Finally, if the barrier to trade is a pure cost (such as transport), imposing bilateral antidumping laws raises national welfare (defined as the sum of domestic profits and consumer surplus), but it is highest (lowest) when such laws apply only in the foreign (home) country. When tariffs also impede trade, however, national welfare is lower with bilateral legislation than with none.

Anderson, Schmitt and Thisse then outline the implications of these theoretical results. First, if both governments are influenced principally by domestic-firm lobbying, they will impose laws, so firms will be worse off and their lobbying will raise consumer welfare. Second, if governments aim maximise their consumers' welfare only, no laws will be imposed even though bilateral laws would benefit all consumers and firms will benefit instead. Finally, if governments focus on improving national welfare, there will be no antidumping legislation, since its unilateral imposition would raise domestic prices. In the case where trade barriers arise solely from transport costs, antidumping laws could benefit both countries by eliminating price discrimination.

Who Benefits from Antidumping Legislation?Simon P Anderson, Nicolas Schmitt and Jacques-François Thisse

Discussion Paper No. 731, November 1992 (AM/IT)