Price-Based Empirical Test of the Reciprocal Dumping Model

UCSC Dept. of Economics Working Paper No. 424

Posted: 10 Feb 1999

See all articles by K. C. Fung

K. C. Fung

University of California at Santa Cruz

Lawrence J. Lau

Chinese University of Hong Kong-Institute of Global Economics and Finance

Date Written: December 1998

Abstract

In this paper we provide direct price-based empirical tests of the Brander-Krugman basic reciprocal dumping model as well as a test for the N-firm version of the model as discussed in Helpman and Krugman (1985). We first explicitly derive testable hypotheses from the basic model concerning how international price differences are generated. We then utilize a data set that provides us with prices of individual identical goods in different markets. Hypothesis testing indicates that there is evidence in support of the duopolistic Brander-Krugman (B-K) model. Further empirical tests also show some support (though weaker) to the N-firm version of the Brander-Krugman-Helpman model. Overall, we find that the Brander-Krugman-Helpman approach is not only theoretically interesting, but it is also empirically relevant.

JEL Classification: F12, F14

Suggested Citation

Fung, K.C. and Lau, Lawrence J., Price-Based Empirical Test of the Reciprocal Dumping Model (December 1998). UCSC Dept. of Economics Working Paper No. 424, Available at SSRN: https://ssrn.com/abstract=142303

K.C. Fung (Contact Author)

University of California at Santa Cruz ( email )

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Lawrence J. Lau

Chinese University of Hong Kong-Institute of Global Economics and Finance ( email )

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