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DUMPING

Meaning

Dumping is a term in international economics used for price discrimination in international trade. It is the practice of charging different prices from different customers. Generally, it is a situation in which a firm charges a lower price for exported goods and services and sells the same commodity at a higher price domestically. In other words, the price for consumers of producing country is high as compared to foreigners.


Dumping can occur only when the following conditions are fulfilled:

  1. The industry must be imperfectly competitive so that firm can set price.
  2. The market must be segmented on the basis of price elasticity of demand and market must be effective so that domestic residence cannot easily purchase good intended for export.
Price discrimination in international trade
Dumping

Objectives

  1. The main objective of dumping is capturing foreign market segment for trade. It is possible because of exporting country/firm sell their product at a lower price in foreign. These companies having large capital, advanced technologies and they spent a huge amount on research works for developing an efficient and effective method of production. Also, they produce in large quantity. Which will reduce per-unit cost/average cost of production. Usually, a consumer always prefers to buy at a lesser price. By this way, they get an international market place.
  2. Firms are producing in large scale, after fulfilling domestic demand they remain with huge surpluses, for selling these surpluses, they need a new market. So that they start dumping. this helps in the growth and development of firms.
  3. Establishing international trade relation, which is also the objective of the government of a country. Which strengthen diplomatic relation too.
  4. Maintain a stable price level in the domestic country to generate revenue in terms of good profit. Because as an increase in supply, it will reduce average revenue for each successive unit of the commodity supplied, at a specific level of quantity supplied firms prefer to export in other countries to maintain the supply level in the domestic country.

Types of Dumping

There are different types of Dumping as follow -

Sporadic dumping : 

Firms dumped excess unsold surplus products to avoid price war in the domestic country and maintain their business position in the market. This types of dumping is temporary in nature.

Predatory dumping :

This type of dumping is permanent in nature. It involves the export of goods and services at lower in foreign markets as compare to the domestic market to gain access to the new trading market place. It removes the competition in the foreign market and creates a Monopoly.

Persistent dumping :

When a firm continuously sold their goods and services at a lower price in the foreign market as compared to the domestic market is known as persistent dumping. It occurs only when there is a constant demand for goods and services in a foreign market.

Advantages

There are many advantages of dumping:
  1. Consumer's of the importing country get more buying options. They also benefitted with the lower price of a commodity.
  2. Exporting firms get the chance of growing their business. They may receive subsidies from their government for encouraging export.
  3. Domestic/Exporting country people get employment opportunities.
  4. It helps in strengthening international trade relations. It will also improve the relation of two countries at each level, at a diplomatic level as well as among citizens.

Disadvantages

There are many disadvantages of dumping:

  1. Destroy Importing country's Firms and Businesses: Firms in importing country faces competition with international companies. Which force them to sell at a low price. If they sell at a low price, they incurred a loss. Thereafter they start quitting. 
  2. Buyers of exporting country away from benefits of low price: Price in the domestic country is higher than the price in foreign for the same product, even they produced in a domestic company.
  3. Debt burden of export subsidies: Government of exporting country faces debt burden for providing export subsidy.

Also Read: DEADWEIGHT LOSS

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