What is Dumping in International Business?

Dumping is a practice in international trade where the producer country or company sells a product in a foreign country at a lower price than the costs incurred in production and shipment to get a hold on the market. It allows them to increase market share in a foreign market by eliminating the competitors and thus establishing a monopoly.

Dumping is considered to be legal by the WTO. Many nations consider dumping as injurious for their economy and resist it by imposing tariffs and quotas to protect the domestic producers. 

Trade agreements between two countries generally include provisions restricting the trade dumping, but it is often difficult to prove. When the two countries do not have a trade agreement in place, there is no restriction on dumping.

 Types of Dumping

Broadly, there are two techniques of dumping - price-to-price dumping and price-cost dumping. 

In price-to-price dumping, the exporter increases the price of the product in the home market in order to supplement the lower profit collected from the exported goods. 

In price-cost dumping, the local government encourages the dumping with subsidies and cash incentives. 

Dumping Margin

Dumping margin is the difference between the fair value of a merchandise and the constructed export price at which the exporter is selling it in the foreign country in case of dumping. The comparison of the prices may require a conversion of currencies. The conversion should be made using the exchange rate on the date of selling the product. When a sale of foreign currency on forward markets is directly linked to the particular export sale, the exchange rate in the foreign sell should be used to calculate the difference.

Related Topics

• What is the Right Price for a Product?
• Competition-Driven Pricing
• Profit-Oriented Pricing Strategy
• Sales-Oriented Pricing Strategy
• Status Quo Pricing Strategy
• Value-Based Pricing Strategy
• Penetration Pricing Strategy
• Manufacturers Suggested Retail Price (MSRP) Definition
• Markdown
• Price Skimming
• Why Give Discounts?
• Trade Allowances
• Charging for Product Transportation
• Legal Issues with Pricing
• What is Product Dumping?
• What is Price Fixing? 
• Why is Price Fixing Harmful?
• What is Price Discrimination?
• Why Pricing Discrimination is Harmful

Other Related Topics

• Protectionism
• Closed Economy
• Tariffs 
• Absolute Quotas
• Double Column Tariff
• Infant Industry Theory
• National Interest Argument
• Race to the Bottom
• Anti-Dumping Laws
• Dumping