Import Demand Elasticity and Exporter Responses to Anti-Dumping Duties

When an anti-dumping (AD) duty is imposed, a foreign exporting firm must decide whether to stay in the market and how to price its product. This paper investigates both of these decisions, but focuses on firm pricing by exploring the pass-through of the AD duty. Our model of exporter behavior shows that the firm’s responses crucially depend on the elasticity of the import demand. The firm finds it easier to increase the price if it faces a low elasticity of demand. The theoretical predictions are supported empirically by relating product-level US import demand elasticities and exporting firms’ reactions to duties inferred from a dataset on US AD investigations from 1980 to 1995