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