Design of an Antidumping Law

The GATT/WTO requires an investigation documenting unfair pricing and material injury before AD duties can be imposed. Governments have discretion as to how many periods are included in the injury assessment and how long duties remain in effect. An AD law can be designed so that duopolists implement Markov Perfect rather than Nash-Bertrand strategies, affecting the equilibrium only in low demand states. Material injury doesn’t occur, and no complaints are filed. This benefits the home firm and harms the foreign firm less than when duties are imposed. The home government also benefits when investigations and visible protection are costly.