Optimal foreign trade pricing in CPEs under endogenous uncertainty: the case of dumping

Abstract

This study applies to centrally planned economies the theory of optimal trade policy under endogenous uncertainty introduced by Bhagwati and Srinivasan. While Bhagwati and Srinivasan focus on the export decisions of a profit-maximizing firm encountering possible quotas (of known size) the following period, this article analyzes the price-setting decisions of a state-controlled exporter facing potential antidumping tariffs (of ex ante unknown magnitude) at some (uncertain) future time. For reasonable parameters related to U.S. antidumping laws and the exporter's bonus function, and for given conditions of demand, the model determines a restricted price range from which a Soviet-type exporter would select its optimal price given subjective probability distributions of the timing and degree of protection. One result is that choosing a sufficiently low price to provoke an antidumping petition but only late in the relevant time period may be preferred to a conservative strategy of high prices which minimizes t...