dumping

Definition and Explanation: Dumping is the situation in which firm sale of surplus output on foreign markets at below cost price.

Dumping also occurs when a firm sells its products at a higher price in the home market and at a lower price in the foreign market with the aim of driving competitors out of the market. Some points regarding dumping are given below :1. Dumping is a special case of price discrimination. For international price discrimination to take place, conditions must be met: a) Domestic and foreign markets must be separated. b) Demand elasticity of the product must be different in two markets. The good can be sold with a lower price where the demand elasticity is high; and with a higher price where demand elasticity is low. 2. Dumping is considered to be an unfair trade practice and, as such, is prohibited under many national trade laws.

Types of dumping:

1) Sporadic Dumping: Occasional sale of a commodity at below cost in order to unload an unforeseen and temporary surplus of the commodity without having to reduce domestic prices. 2) Predatory Dumping: Temporary sale of a commodity at below cost or a lower price abroad in order to derive foreign producers out of business, after which prices are raised to take advantage of the monopoly power abroad. 

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Persistent Dumping: Continuous tendency of a domestic monopolist to maximize total profits by selling the commodity at a higher price in the domestic market than internationally (to meet the competition of foreign rivals). For international price discrimination to take place, conditions must be met: o Domestic and foreign markets must be separated. o Demand elasticity of the product must be different in two markets. The good can be sold with a lower price where the demand elasticity is high; and with a higher price where demand elasticity is low.

3) 3.3 Causes of Dumping Dumpig usually occurs because of the following reasons:

(1) Producers in one country are trying to stay competitive with producers in another country, (2) Producers in one country are trying to eliminate the producers in another country and gain a larger share of the world market, (3) Producers are trying to get rid of excess stuff that they can't sell in their own country, (4) Producers can make more profit by dividing sales into domestic and foreign markets, then charging each market whatever price the buyers are willing to pay.

REASONS BEHIND DUMPING IN THE COUNTRY WITH EXAMPLE. Dumping is a form of price discrimination across borders. Price discrimination is the practice of charging different customers different prices for the same or similar products/services. For example you might pay €90 per night for a hotel room and another person €60 per night for the same grade of room. The hotel uses pricing models that may be based on how you booked your room (internet vs. travel agent) or

your country of origin (Germany vs. UK). These pricing models may indicate that one group of people are willing to pay more than another for the same product. Price discrimination is an important political issue in world trade. If price discrimination results in foreigners being charged less that the home country consumers, economist call this dumping. Many people see the practice as unfair. For dumping to occur two conditions need to be met. (1)The industry must be imperfectly competitive meaning that firms have price setting power. (2) The markets must be segmented so that it is not easy for home country consumers to purchase product intended for foreign markets. main advantage of dumping a) dumping is being able to sell at this unfairly competitive lower price. b) Generally a country will have to give the exporting businesses a huge subsidy to enable them to sell the export below cost. c) The country is willing to take a loss on the product to increase its comparable advantage in that industry. d) It may do this because it wants to create jobs for its residents. It often uses dumping as an attack on the other country's industry, in the hopes of putting that country's producers out of business, and dominating that industry.

The effect of dumping differs from country to country. For example it is beneficial for the country who dumped its product but on other hand it is harmful for the country in which the dumping is being done. Positive effect:- Persistent beneficial for the country who dumped the product because due to this a country would be able to earn revenue from the international market by selling their dumped product or by selling those product having very low demand in the domestic market. Due to dumping a country would be able to capture the international market and earn more profit. Disadvantage of dumping

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The main disadvantage of dumping is that it's very expensive to maintain. It can take years for dumping to work(its longterm process)Meanwhile, the cost of subsidies can add to the export country's sovereign debt.

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The second disadvantage is retaliation by the trade partner. This can lead to trade restrictions and tariffs.

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The third is censure by international trade organizations, such as the World Trade Organization (WTO) or the European Union (EU).

Is dumping unfair? An example Your company sells 1000 widgets at home and 100 abroad. The price for home goods is €20 per widget and €15 per widget abroad. It seems logical that pushing for more domestic sales will lead to greater profits than an equal increase in foreign sales. However, to expand your sales you may need to reduce your price by €0.01. This means that the increase in revenue of one extra widget sold would be €19.99. However, you will almost certainly have to reduce the price of all the widgets to €19.99 – not just the 10,001st. This will reduce the total receipts for the 10,000 widgets by €10. Therefore, the marginal revenue for selling one extra widget will be €9.99 not €19.99. Let’s look at the foreign sales. If you reduced the price by €0.01 you would receive only and extra €14.99 per extra widget. However, the impact of the price reduction on the revenue of the original 100 would be €1. This means your margin revenue on increased exports would be €13.99. In this case it would be more profitable to push for increased foreign sales than domestic sales. (make figure here)

Dumping: According to GATT and WTO Anti-Dumping Agreement Dumping occurs when the export price of goods imported into India is less than the Normal Value of ‗like articles‘ sold in the domestic market of the exporter. Imports at cheap or low prices do not per se indicate dumping. The price at which like articles are sold in the domestic market of the exporter is referred to as the ―Normal Value‖ of those articles.

The normal value is the comparable price at which the goods under complaint are sold, in the ordinary course of trade, in the domestic market of the exporting country or territory. If the normal value cannot be determined by means of domestic sales, the Act provides for the following two alternative methods: • Comparable representative export price to an appropriate third country. • Cost of production in the country of origin with reasonable addition for administrative, selling and general costs and for profits. The export price of goods imported into India is the price paid or payable for the goods by the first independent buyer.

Conclusion The practice of dumping has proved to be a matter of controversy among economists. The conventional economic view of dumping is that it benefits the importing country when continuous or permanent, but is potentially injurious when discontinuous or of relatively short duration.59 Dumping has the potential of affecting the interests of consumers in the importing country only as it affects the prices prevailing there. 60 The significance of dumping to the importing country may likewise be considered from the divergent points of view of consumers and producers.61 Users and consumers are likely to enjoy short‐term benefits from dumped imports through low prices, but the condition may be less favourable in the long‐run.62 In instances where domestic producers are forced to lower production or cease it altogether, competition is reduced and this type of situation is not likely to serve consumer interests in the long‐run.