PRICE DUMPING IN INTERMEDIATE GOOD MARKETS

We analyze price dumping and anti-dumping duties in the context of a model with a vertical industry structure. Dumping in the intermediate good market arises from differences in country-specific final good production costs. The price differential, or dumping margin, is shown to increase as the productivity difference increases. An anti-dumping duty, designed to reduce the equilibrium price differential, has two effects on welfare: a welfare loss from reduced final good production and a contrasting gain achieved by producing the lower output level more efficiently.