Dumping is an economic phenomenon that is most often referred to as methods of unfair competition. Many entrepreneurs are willing to make serious sacrifices to eliminate competitors.
Dumping: definition, value, translation
There are many methods of competition. One of those is dumping. This is an artificial, deliberate understatement of prices to below market levels. Sometimes, in order to eliminate competitors and take their place in the market niche, manufacturers can even lower the bar below cost. It is worth noting that in the translation from English this term means "dumping". In this context, the concept refers to stocks of goods. This implies the dumping of stocks of finished products at low prices.
The calculation here is very simple. Having suffered losses in the initial period, the manufacturer can gain a significant market share. Subsequently, when prices begin to gradually rise, the company will fully pay for all activities and shortages. Manufacturers take this step completely voluntarily and consciously.
Legislation dumping types
Dumping is a fairly broad concept that can be viewed from different points of view. So, if we talk about the state and legislation, it is legitimate to name the following types of it:
- price dumping - implies that the manufacturer in the process of export sells its goods much cheaper than in the domestic market;
- cost dumping - means the sale of goods abroad at a price that does not exceed the cost of production.
Commercial dumping
Thus, dumping is a fairly effective and widespread method of competition. Speaking of commerce, the following main varieties are worth noting:
- sporadic dumping - is episodic in nature and involves the sale of small quantities of goods at low prices (seasonal sales are an example);
- intentional - involves a targeted reduction in prices to eliminate competitors from the market;
- permanent - its essence becomes clear from the name itself;
- the reverse - implies that the exporter sells goods outside the state at much higher prices than in the domestic market;
- counter dumping is a phenomenon in which two countries (or more) in their mutual trade relations adhere to average market prices.
Thus, dumping cannot be considered from only one angle. In some cases, it not only does not cause serious economic problems, but also benefits several parties to trade relations.
Anti-dumping policy
Asking the question “Dumping - what is it?”, Not everyone knows that this activity is not entirely legal. According to the rules of the World Trade Organization, it refers to unfair competition methods. This question is especially acute when it comes to the international economy.
In case of suspicion, a special investigation is conducted to identify dumping. What it is? You can figure it out by studying the constituent stages of this process:
- first, a specially created commission must prove that there is a dumping fact (special formulas and coefficients are used for this purpose);
- proof of the fact of material damage that was caused to the economy of the state as a whole, a separate industry or a specific commercial enterprise;
- establishing the relationship between economic loss and unlawful actions to lower prices.
Based on the results of the investigation, during which the fact of dumping was established, WTO bodies can decide on the application of appropriate measures and sanctions against the offender. It is also allowed for the injured party to respond with similar content to the dumping party.
findings
Increasingly, in economic news you can hear such a term as dumping. The meaning of the word lies in the fact that the side of trade relations, which wants to expand the market, increase sales and eliminate competitors from the market niche, deliberately underestimates the prices of its products. Many entrepreneurs go for it even when there is a risk of serious losses.
It is worth noting that dumping is characterized by both positive and negative aspects. The main advantage is that it is an effective method of competition. Nevertheless, there is no guarantee that after raising prices the target audience will remain loyal to the manufacturer. Thus, there is a risk of not covering economic losses. We also recall that dumping refers to unfair competition methods and is prosecuted by law. Each state has developed anti-dumping policies that imply liability of the offender.