The media is constantly talking about the economic situation. But not all terms that sound from the screen are clear. So, not everyone knows what dumping is. The goals of anti-dumping measures are not clear. Is price reduction not beneficial?
The concept
The word "dumping" comes from the English language. It comes from the verb dump, which in Russian means "dump, dump rubbish." In Russia, the concept of dumping has been known since the beginning of the twentieth century. Then this word denoted the sale of goods at bargain prices.
In the modern economy, dumping means the phenomenon when a company artificially reduces the prices of goods and services it offers under the pressure of certain circumstances.
Understanding what dumping is, it is important to keep in mind: there are a number of price reduction situations that do not apply to it. Among them are:
- a discount on goods as a result of a marketing move or promotion;
- sale in connection with a change or termination of activity;
- lower prices due to lower costs.
Goals
There are several types of situations in which dumping can be used:
- If you want to capture new markets. Often, such measures are carried out directly by the state in agricultural and industrial sectors. Such events are called dumping the market and are aimed at supporting domestic producers.
- Often in retail trade there is a situation of underestimation of prices in order to eliminate competitors. Subsequently, when many of them leave the market, prices will again be raised and losses will be recouped.
- Dumping can act as a public policy. In this case, prices are underestimated by companies with state participation. The trend is followed by other market participants.
- Dumping prices when exporting goods allows the company to compete with foreign manufacturers.
Kinds
The modern theory of economics distinguishes the following types of dumping: permanent and temporary.
With constant dumping, artificially low prices are maintained for a long time. It should be borne in mind that if the dumping period is more than 12 months, this can lead to the ruin of the company.
With temporary dumping, prices are kept at an underestimated level of at least several weeks and not more than several months.
Advantages and disadvantages
Having understood what dumping is, many decide that this is an exclusively positive phenomenon. However, this is not quite true. Like any economic process, it has a number of advantages and disadvantages.
The positive effects are more obvious:
- It can be difficult for new companies to gain a foothold in the market and find their customers. In this case, dumping prices can help them.
- Many consumers are distrustful of new products on the market. Significantly promote their ability to reduce prices. It also helps reduce advertising costs.
- Dumping, in contrast to organized stocks, allows you to sell goods without spending additional amounts on it.
The disadvantages of deliberately lowering prices are not so obvious. Nevertheless, they exist and concern, first of all, the internal situation in the company.
- Often, goods involved in dumping are sold at a price below cost. This may adversely affect the financial well-being of the company.
- In the case of dumping the prices of exported goods, many companies inflate their value in the domestic market in order to reduce the negative consequences. Moreover, if the organization is a monopolist in the country, price increases can be quite substantial.
- Dumping can lead to the fact that the manufacturer becomes a monopolist in the market. As a result, a situation arises when he can dictate his conditions.
- Government-backed companies often use subsidies to cover losses from intentional understatement. This may adversely affect the state budget of the country.
- A significant reduction in the cost of a particular category of goods or services can lead to a decrease in their quality. In order to cover losses, a manufacturer can switch to using low-quality raw materials, simplify production technology, reduce wages and, as a result, the level of professionalism of workers.
Methods of struggle
Having understood what dumping really is, it becomes clear that the fight against it is simply necessary. But it is not easy to carry out, because too many consumers when choosing a product or service consider their price a priority. That is why we have to deal with this phenomenon by administrative measures. Among them are:
- restriction of sales by the state;
- adoption of laws establishing a minimum price for goods (in our country this is observed with alcoholic beverages);
- the introduction of additional customs duties to protect local manufacturers from foreign companies that offer cheaper low-quality counterparts.
Thus, in spite of the fact that many people consider the price reduction to be exclusively positive, dumping has a number of disadvantages. It can cause significant damage to the economy, so it should be fought.
