Dumping

Dumping is the sale of products exported at prices lower than their production cost or at prices below the same or similar products offered on the domestic market. Dumping is the dangerous practice, threatening the domestic industry.

Dumping types

There are three kinds of dumping:

• Sporadic dumping - this is a sporadic selling of products abroad at prices below production costs. Results from emergency situations, such as a sharp drop in demand in the domestic market or an exceptional harvest in a given year.
• Predatory dumping - aims to capture some of the market and eliminate competition by offering prices below the cost of production. Competitive enterprises using predatory dumping will become a monopolist on the market, after that it raises prices in order to pursue monopolistic profit.
• Constant dumping - sale of goods to foreign markets at a price lower than the market national level. It is used when the demand for the given commodity on the domestic market is much less flexible than in the foreign market. In this case, the manufacturer can sell goods at relatively high prices on the domestic market (especially when there are restrictions on the import of this good).

Dumping impact on economy

Dumping can have a negative impact on the economy of the country where the imported goods are sold. It can lead to the loss of jobs and revenue for domestic companies in the same industry, as they are unable to compete with the artificially low prices of the imported goods. Dumping can also lead to a decrease in government revenue, as taxes and tariffs on imported goods may decrease. Additionally, it can lead to a decrease in consumer welfare as domestic companies may be forced to reduce the quality of their products in order to compete with the low prices of the imported goods. In general, Dumping is seen as an unfair trade practice that harms domestic industries, workers and economies.

Dumping beneficiaries

In the short term, companies engaging in dumping may benefit by increasing their market share and revenues. They can also benefit from reduced competition in the domestic market. However, in the long term, dumping can lead to the bankruptcy or closure of domestic companies and the loss of jobs, which can have a negative impact on the economy of the country where the imported goods are sold. Additionally, consumers may also benefit in the short term by paying lower prices for the imported goods, but in the long term, they may have fewer options and potentially lower quality products to choose from as domestic companies may struggle to compete.

It's worth noting that Dumping can benefit the country whose companies are engaging in it in the short term, but it is not considered as a sustainable or ethical trade practice. Governments and international organizations are trying to regulate this practice through anti-dumping agreements and laws.

Examples of Dumping

• Price Dumping: Price dumping occurs when a company exports a good at a price lower than it charges for the same good in the domestic market. This practice can put domestic companies at a disadvantage and cause economic harm. An example of price dumping would be if a company sold a phone for $150 in its domestic market, but then sold the same phone for $100 in a foreign market.
• Dumping in Quantity: Dumping in quantity occurs when a company exports a large amount of a good at a price lower than it charges for the same good in the domestic market. This practice can put domestic companies at a disadvantage and cause economic harm. An example of dumping in quantity would be if a company sold 1,000 phones in its domestic market for $150 each, but then sold 10,000 phones in a foreign market for $100 each.
• Market Dumping: Market dumping occurs when a company exports a good at a price lower than it charges for the same good in the domestic market, but only in certain markets. This practice can put domestic companies at a disadvantage and cause economic harm. An example of market dumping would be if a company sold a phone for $150 in its domestic market, but then sold the same phone for $100 in certain foreign markets, but not in others.

Advantages of Dumping

Dumping can have a few advantages when used strategically.

• Firstly, dumping can increase a company’s market share, allowing them to gain more customers and increase their revenue.
• Secondly, it can help to introduce new products to the market, as lower prices can help to encourage customers to buy the product and increase brand awareness.
• Lastly, dumping can help to reduce production costs for companies by selling their products for lower prices in foreign markets. This can be advantageous for companies looking to cut costs and become more competitive.

Limitations of Dumping

Dumping can have serious consequences for the domestic market and industry. Some of the limitations of dumping include:

• It can lead to the displacement of domestic industries, as the imported products may be cheaper and better quality than those produced domestically.
• It can lead to the loss of jobs in the domestic market, as companies may have to reduce staffing levels in order to remain competitive.
• It can lead to a reduction in wages, as employers may be forced to reduce wages in order to remain competitive.
• It can lead to a reduction in government revenue, as companies may be able to avoid paying taxes on their imports.
• It can lead to a race to the bottom, as countries may feel pressure to lower their standards in order to remain competitive.
• It can lead to unfair competition, as companies may be able to take advantage of weaker labor and environmental standards in other countries.
• It can lead to an increase in inequality, as some countries may be able to benefit from lower prices, while others may suffer from the loss of jobs and wages.

Other approaches related to Dumping

Dumping is a dangerous practice that threatens the domestic industry, but there are other approaches related to it. These include:

• Anti-dumping measures: These are trade regulations imposed to discourage dumping of products on the domestic market, usually in the form of tariffs or taxes.
• Countervailing duties: These are customs duties imposed on imported goods, designed to offset the effects of subsidies given to the exporters in their home country.
• Voluntary export restraints: These are agreements between countries to limit the quantity of exports and protect the domestic market from saturation with foreign goods.
• Safeguard measures: These are temporary measures taken to protect a domestic industry from the impact of sudden, unexpected import surges.

In summary, dumping is a dangerous practice that threatens the domestic industry, but there are other approaches related to it, such as anti-dumping measures, countervailing duties, voluntary export restraints, and safeguard measures.

Dumping — recommended articles

Price control — Resale price maintenance — Expansionary prices strategy — Monopoly — Monopson — Fair competition — Preventive pricing strategy — Decreasing cost industry — Free competition

References

• Kostecki, M. M. (1991). Marketing strategies between dumping and anti-dumping action. European Journal of Marketing, 25(12), 7-19.