Business, Legal & Accounting Glossary
Alternatively known as predatory pricing, dumping denotes the practice in which the sellers price their products at a lower cost to eliminate the surplus and gain market. In international trade, the manufactures export their product at a lower price than its cost in the domestic market. At times the price is lower than the production cost of the items. While the advocates of free-market consider dumping as advantageous for the consumers, others believe that the economies should be protected from predatory practices such as dumping.
Dumping may often lead to conditions in which one company gains a monopoly in the market over a certain product or industry. For example, in a competitive market where a foreign and a domestic company manufacture the same product, a reduction in the prices by the foreign company may result in huge losses to the domestic company. Lowering of prices and a higher cost of production for the domestic company will exhaust its resources, eventually driving it out of the market.
In such a practice, the dumping margin is maintained which denotes the difference between the price at which the commodity is exported and the fair price. The dumping margin is used to determine anti-dumping duties.
WTO Agreement condemns dumping if the predatory practice threatens to cause or results into a material loss to the domestic market of the importing country. However, the practice is not completely prohibited by the WTO.
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This glossary post was last updated: 2nd April, 2020 | 7 Views.