The Robustness of Cartels Facilitated by Anti-Dumping Regulations
This study formulates Prusa's (1992) theory that anti-dumping regulations facilitate the formation of cartels between an exporter and import-competing firms. It demonstrates that interest rates and product differentiation are two key factors that may determine the robustness of the cartels. It builds a Bertrand duopoly model with differentiated products that explains how anti-dumping regulations might encourage the creation of cartels. To highlight the circumstances under which an import-competing firm is seriously hurt by dumped exports, this study adopts the following setting. First, both the exporter and the import-competing firms sell only in the home market. Second, if the exporter's product is sold at a cheaper price than the product of an import-competing firm in the home market, this is a sufficient condition to initiate an anti-dumping petition. Although the setting might also provide the circumstances under which the anti-dumping authority could be over-protecting the import-competing firm, it makes it possible to view the exporter as a predator. Since the setting enables the exporter to be free from the need to make profits in its own market, it sets a lower price for its product only if it decides to undertake predatory activities against an import-competing firm. Copyright Blackwell Publishing Ltd/University of Adelaide and Flinders University of South Australia 2004.
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