Dumping, adjustment costs and uncertainty

Abstract

Domestic demand uncertainty in the presence of adjustment costs can cause profit-maximizing firms to sell output abroad at a loss. Firms may dump output at prices below long-run marginal and average productions costs with probability arbitrarily close to one. The model predicts dumping is particularly likely in process industries such as steel. Closed form dumping solutions and interesting comparative statics are obtained. Also, the effect of domestic competition on dumping is examined. I find domestic competition increases total dumping, although a monopolist maximizing output subject to a zero expected profit constraint will dump more than a competitive industry.