We analyze firms’ incentive to invest in product R&D and how this product R&D affects firms’ incentive to petition for an antidumping protection. It is found that, when one of the governments implements antidumping policy, the protected firm decreases its product R&D investment while the constrained firm invests more. The total product R&D investment is even lower than that under free trade, which in turn may deteriorate the profit of protected firm. Accordingly, the protected firm may withdraw its anti-dumping petition. Moreover, we show that the constrained firm has the incentive to petition for a fight-back anti-dumping policy only if the level of product R&D can be endogenously determined. Finally, such an anti-dumping retaliation increases the incentive of the protected firm to petition for an anti-dumping protection if the level of product R&D is large enough.
89th Annual Western Economic Association International Conference