European antidumping policy and firms' strategic choice of quality
Faculty of Applied Economics
Antwerp , 1999
Research paper / UFSIA, Faculty of Applied Economics , 1999:007
University of Antwerp
In this paper, we consider a European industry characterized by vertical product differentiation. Using a two-stage model with quality choice made before price competition takes place, we show that EU anti-dumping policy that takes the form of price-undertakings offers a powerful protection to domestic firms, but only at the price competition stage. Once the impact of the A-D policy on quality choices is taken into account, EuropeanWelfare as well as profits accruing to the domestic firm decrease whenever the free trade equilibrium is affected. Hence we show that European Antidumping policies may induce perverse leapfrogging.