There is a lot of competition in the modern market, so manufacturers resort to various methods in order to sell their goods and services. So, some are trying to dump. This means artificially lowering the cost of production in order to crowd out competitors and occupy its niche. In a number of countries, dumping is perceived negatively; therefore, laws are created against it and various measures are applied.
What is dumping?
According to financiers, dumping in the economy is an ambiguous concept. On the one hand, this phenomenon helps the state or companies to penetrate a new market and gain a firm foothold there. On the other hand, similar products of other manufacturers are depreciated, which leads to losses.
In a general sense, dumping is understood as the sale of goods and services at prices that are artificially low. Such prices are often lower than market, and sometimes even lower than the cost of production.
What is the purpose of persons who resort to dumping? The main goal is to get rid of competitors and strengthen their position in the market. At the same time, thoughtful company executives understand that dumping is also the hope of recovering current losses in the future.
But losses may vary, as some companies constantly dump prices, while others only one-time at the initial stage of trading. The latter are simply trying to quickly sell illiquid goods or monetize inventory. And this is the case if there is a risk of getting more serious losses than losses when dumping prices.
The main types of dumping
According to modern laws in force in developed countries, the following types of dumping are distinguished:
- Cost. We are talking about the sale of goods on the exporter's market at a price that is even lower than the cost of this product.
- Price. This is the sale of goods to exporters at a price that is an order of magnitude lower than the price of the same product in national markets.
Types of dumping in commerce
As for the commercial area, there are several types of dumping, among which:
- Intentional dumping is a deliberate underestimation of prices in the export market in order to “remove” competing firms in the industry and later establish their monopoly prices for goods. Sometimes these prices are lower than at national market sites, and even less often, lower than production costs. In this situation, dumping is to act thoughtfully and systematically.
- Sporadic dumping is the company's desire to sell surplus stocks of products at a reduced price to the foreign market. This happens when the volume of production of goods is significantly higher than the capacity of the domestic market. In other words, the volume of supply exceeds demand in the domestic market, and therefore there is a need to somewhere to realize the surplus.
- Permanent dumping - the export of products at a price that is lower than the cost, in regular mode.
- Mutual dumping - countertrade of two powers with the same goods at a reduced price. Sometimes this phenomenon takes place in conditions of monopolization on a particular product in each of these two states that decided to dump. This is not an indicator of friendly relations between countries, but only mutual financial interest.
- Reverse dumping is an increase in the price of exported goods compared to the price of the same products on the national market. This phenomenon is very rare, manifested as a result of sharp jumps in exchange rates.
What does dumping lead to?
The consequences of dumping are very dire in the first place for the country, which is the importer. In this state, producers suffer from imported cheap products. That is, they cause serious material damage.
In addition, dumping negatively affects the level of growth of economic indicators on a local scale. In particular, this can be seen in the market of services where suppliers deliberately underestimate prices in order to take their "place in the sun." If this phenomenon assumes a systemic character, then not only one industry suffers, but the entire regional market, where services of the same type are provided.
Dumping
Today, many countries are faced with the question: how to deal with dumping? Indeed, the attitude of manufacturers from it is often negative. It is believed that dumping destroys all the rules of fair competition and leads to the fact that local companies suffer losses.
Modern economic practice has already come to the conclusion that dumping can be resisted with the help of legislation. Special anti-dumping laws already exist, and for the import of goods at low prices anti-dumping duty.
If dumping brings serious problems associated with damage from a material point of view, then experts recommend that affected companies conduct an investigation and contact the appropriate authorities to clarify the circumstances.
