DUMPING AND SIGNALING

A model of predatory dumping based upon incomplete and asymmetric information is developed. The foreign firm may induce exit by the home firm through acting like a low cost competitor, irrespective of its actual costs. The home firm must infer the foreign firm's cost through its export price. By tying the export price to the price that the foreign firm charges in the foreign market, a home county antidumping law raises the cost of signaling low production costs to the home producer. The law has signal enhancing or inhibiting effects, which may adversely affect the home firm with ambiguous welfare consequences.