This paper analyzes anti¬dumping (AD) policies in a two-country model with heterogeneous firms. One country enforces AD so harshly that firms exporting to the country choose not to dump. In the short run, the country enforcing AD experiences reduced com¬petition to the benefit of local firm and detriment of local consum¬ers, but in the long run AD protection attracts new firms, increasing competition and consumer welfare. In the country's trading partner, competition initially increases: Some firms give up exporting, but those that remain will lower their domestic prices. Consumers there¬fore benefit in the short run. In the long run, however, fewer firms will enter the unprotected country, and competition will eventually decrease, resulting in welfare losses.
