The Effect of Domestic Antidumping Law in the Presence of Foreign Monopoly
Robert W. Staiger
Frank A. Wolak
We consider the effects of antidumping law when utilized by competitive
domestic petitioners against a foreign monopolist. The foreign monopolist
must set capacity before the realization of random foreign demand, but can
reduce the cost of holding excess capacity in periods of slack foreign
demand by dumping on the domestic market. With the introduction of
antidumping law in the domestic market, domestic firms are shown to file
suits in periods of sufficiently slack foreign demand, reducing the volume
of imports directly in such periods. Moreover, this occasional filing
activity raises the cost to the foreign monopolist of holding excess
capacity and, in so doing, results in a scaling back of foreign capacity.
Thus, the volume of imports is generally reduced by the introduction of
domestic antidumping law, even in periods where no suit is filed. Finally.
we consider self-enforcing agreements between the domestic industry and the
foreign monopolist that take the form of a promise by the domestic industry
not to file in exchange for a promise by the foreign monopolist to export no
more than a pre-specified amount: We show that these agreements narrow the
range of demand states over which suits are filed to only the softest states
of demand, and lead to greater foreign capacity, hence partially mitigating
both the direct and indirect impact of antidumping law on trade volume.
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