Import Demand Elasticity and Exporter Response to Anti-dumping Duties

Abstract

When an anti-dumping duty is imposed on a foreign firm, it can either pay the duty or stop dumping by increasing the import price. Importing country's welfare depends on the foreign firm's decision. This paper presents a game-theoretical model of anti-dumping investigation to show that in theory exporter's choice crucially depends on the elasticity of import demand. The more elastic the demand the less likely is the firm to increase the price. This assertion is supported empirically by relating product-level US import demand elasticities (Broda and Weinstein, 2006) and exporting firm reactions to duties inferred from Bruce Blonigen's dataset on U.S. anti-dumping investigations during 1980-1995.