Dumping (pricing policy)

Dumping, in economics, is a kind of injuring pricing, especially in the context of international trade. It occurs when manufacturers export a product to another country at a price below the normal price with an injuring effect. The objective of dumping is to increase market share in a foreign market by driving out competition and thereby create a monopoly situation where the exporter will be able to unilaterally dictate price and quality of the product. Trade treaties might include mechanisms to alleviate problems related to dumping, such as countervailing duty penalties and anti-dumping statutes.

Overview

A standard technical definition of dumping is the act of charging a lower price for the like product in a foreign market than the normal value of the product, for example the price of the same product in a domestic market of the exporter or in a third country market. This is often referred to as selling at less than "normal value" on the same level of trade in the ordinary course of trade. Under the World Trade Organization's Antidumping Agreement, full name ''Agreement on Implementation of Article VI of the General Agreement on Tariffs and Trade 1994'', dumping is not prohibited unless it causes or threatens to cause material injury to a domestic industry in the importing country. Dumping is also prohibited when it causes "material retardation" in the establishment of an industry in the domestic market.

The term has a negative connotation, as advocates of competitive markets see "dumping" as a form of unfair competition. Furthermore, advocates for workers and laborers believe that safeguarding businesses against such practices, such as dumping, help alleviate some of the harsher consequences of such practices between economies at different stages of development (see ''protectionism''). The Bolkestein directive, for example, was accused in Europe of being a form of "social dumping", as it favored competition between workers, as exemplified by the Polish Plumber stereotype. While there are few examples of a national scale dumping that succeeded in producing a national-level monopoly, there are several examples of local 'dumping' that produced a monopoly in regional markets for certain industries. Ron Chernow points to the example of regional oil monopolies in ''Titan: The Life of John D. Rockefeller, Sr.'' where lining an approved strategy where oil in one market, Cincinnati, would be sold at or below cost to drive competition's profits down and force them to exit the market. In another area where other independent businesses were already driven out, namely in Chicago, prices would be increased by a quarter.

''Third country dumping'' refers to a situation in which exports of a product from one country are being injured or threatened with injury because of exports of a product from a second country into a third country at less than fair value.

Anti-dumping actions

Legal issues

If a company exports a product at a price that is lower than the price it normally charges in its own home market, or sells at a price that does not meet its full cost of production, it is said to be "dumping" the product. It is a sub part of the various forms of price discrimination and is classified as third-degree price discrimination. Opinions differ as to whether or not such practice constitutes unfair competition