chapter7 (2) - Discriminating Monopoly Assume a foreign...

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Discriminating Monopoly Assume a foreign monopolist sells both to its local market and exports to a foreign market. The monopolist is able to charge different prices in the two markets. Discriminating monopoly The firm’s demand in the export market will be more elastic since there is more competition. It will lose more customers by raising prices than in the local market. Dumping could occur if a foreign firm receives a production or export subsidy from its government. We now want to understand the policy response in the importing country. Under the WTO, an importing country is entitled to apply an antidumping tariff anytime that a foreign firm is dumping its product. An imported product is being dumped if its price is below the price that the exporter charges in its own local market. If the exporter’s local price is not available, then dumping is determined by comparing the import price to: A price charged for the product in a third market, or The exporter’s average costs of production Anti-dumping Duty The amount of the antidumping duty is calculated as the difference between the exporter’s local price and the “dumped” price in the importing country. The purpose of the duty is to raise the price of the dumped good and protect domestic producers. The fact that the higher price also raises prices for domestic consumers
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chapter7 (2) - Discriminating Monopoly Assume a foreign...

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