Dumping refers to the act of selling a product or service in a foreign market at a lower price than the established “normal price.” This practice is often used by businesses to gain a monopoly or to drive a competitive threat out of business. By selling their products or services at a lower price, businesses can undercut the prices of their competitors, making it difficult for them to compete and potentially leading to their exit from the market. Dumping can have negative consequences for domestic businesses and consumers, as it can lead to reduced competition and lower prices for domestic products and services. It can also lead to market disruption and potentially harm the domestic economy. As a result, many countries have laws in place to prevent or regulate dumping.

Normal Price

A normal price can refer to a typical “fair value” in a nation over a period of time. The prices charged by a firm in their domestic market and other international markets are also considerations.

Government Support

Dumping isn’t necessarily barred by trade agreements but it is viewed negatively. In many cases, a government or trade organization will take action against dumping if it is damaging the industry of a nation. Dumping is particularly damaging if it is supported by a government with payments such as subsidies.

Example

A firm sells widgets for $2 in their own market and $1.80 in most international markets. Their strongest competition is in Germany where they sell the widgets for $0.30. It is likely this price is aimed at damaging competitors in Germany as opposed to being viewed as a fair value for the product.