WTO’s Anti-dumping Rule and the Protection of Incumbents

Article VI of the GATT allows counter measures if goods are sold on a foreign market at a price below average production plus transportation costs. The present article analyzes Article VI based on a simple game theoretic model with two countries and economies of scale in the production of one homogeneous good. It is shown that multiple equilibria exist under the WTO rule for some parameter values which do not exist without the rule. In some equilibria the incumbent serves the entire market even if the entrant can produce at lower costs. The model supports the criticism of the anti-dumping rule as an instrument of protection by industrialized countries against competition from developing countries.