Signaling Costs: Why Don't More Firms Petition for Protection?

Abstract

The main aim is to question why we don't see more firms petitioning for import relief. It is well accepted that petitioning itself can restrain imports, lead to higher prices and hence higher profits (in the short run). What prevents more firms from filing for protection? It may be that petitioning reflects cost inefficiency on the part of the petitioning firm, and concerns about revealing this information might act as a deterrent for firms to come forward with their complaints. However, in a declining industry where a large number of firms are contemplating exit, petitioning could be a signal that the firm expects to remain in the market for the near future. The signaling hypothesis is tested by comparing the stock market response of an antidumping petition for petitioning firms and non-petitioning firms producing the same product.