International economics Lecture no.

Prof. Mazahir saifee

‡ In economics, "dumping" can refer to any kind of predatory pricing. However, the word is now generally used only in the context of international trade law, where dumping is defined as the act of a manufacturer in one country exporting a product to another country at a price which is either below the price it charges in its home market or is below its costs of production.

Predatory pricing
‡ In business and economics, predatory pricing is the practice of selling a product or service at a very low price, intending to drive competitors out of the market, or create barriers to entry for potential new competitors. If competitors or potential competitors cannot sustain equal or lower prices without losing money, they go out of business or choose not to enter the business.

Definition of dumping
‡ Dumping is price discrimination between two markets in which the monopolist sells a portion of his produced product at a low price and the remaining part at a high price in the domestic market. ‡ Prof. Viner

Viner explains two other types of dumping:‡ Reverse dumping in which the foreign price is higher than the domestic price. This is done to turn out foreign competitors from the domestic market. When the product is sold at a price lower than the cost of production in the domestic market, it is called reverse dumping. ‡ When there is no consumption of the commodity in the domestic market and it is sold in two different foreign market ,out of which one market is charged a high price and the other market a low price .

Classification of dumping
‡ Sporadic or intermittent dumping ‡ Persistent dumping ‡ Predatory dumping

Objectives of dumping
‡ ‡ ‡ ‡ To find a place in the foreign market. To sell surplus commodity Expansion of industry New trade relations

Effects of dumping
‡ On importing country:‡ If a producer dumps his commodity abroad for a short period, then the industry of the importing country is affected for a short while. Due to the low price of the dumped commodity, the industry of that country has to incur a loss for some time because less quantity to its commodity is sold.

‡ If the dumped commodity is a consumer goods, the demand of the people in the importing country will change for the cheap goods. When dumping stops, this demand will reverse, thereby changing the tastes of the people which will be harmful for the economy.

‡ If the dumped commodities are cheap capital goods, they will lead to the setting up of a new industry. But when the imports of such commodities stop, this industry will also be shut down. Thus, ultimately, the importing country will incur a loss.

‡ If the monopolist dumps the commodity for removing his competitors from the foreign market, the importing country gets the benefit of cheap commodity in the beginning. But after the consumption ends and he sells the same commodity at a high monopoly price, the importing country incurs a loss because now it has to pay a high price.

Effects on exporting country
‡ The exporting country also benefits from dumping when the monopolist produces more commodity. Consequently, the demand for the required inputs such as raw materials , etc. For the production of that commodity increases, thereby expanding the means of employment in the country.



‡ The exporting country earns foreign currency by selling its commodity in large quantity in the foreign market through dumping. As a result, its balance of trade improves.

Anti dumping measures
‡ ‡ ‡ ‡ Tariff duty Import quota Import Embargo Voluntary export restraint

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