The Robustness of Cartels Facilitated by Anti‐Dumping Regulations

Abstract

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.