Dumping is the continued practice of selling products and services below their cost price.
It is an Anglo-Saxon term derived from the term "dump" which means to pour or spill. It is used as a synonym of selling below the manufacturing price or cost of a product with the aim of bursting the market and competition.
Initially, dumping was related as a practice of international trade (international dumping). So an export is moved to another country below cost to try to ward off local competition. However, currently dumping arises in all fields and markets, both international and local. Although in local markets it is more commonly known as predatory pricing.
Types of dumping
There may be several types of dumping, depending on the origin and motivation reached:
- Social: When by law it is forced to have low prices on some products, such as basic subsistence products.
- Exchange rate: Motivated by variations in rates, so that in some countries the exchange rate causes products to sell well below their competitors and national costs.
- Official: When the products have subsidies and tax exemptions to be able to sell at a low price.
- Predatory: It is properly known as dumping, since it consists of conscientiously and manifestly selling at prices below cost either to enter a market or to formalize monopolies. It is about causing short-term losses to be able to open profits in the medium and long term, destroying the surrounding industry in its path.
Development of anti-competitive practices
Dumping as a practice has actually always existed. It is common to find marketing campaigns in which a product is given away or sold at a price much lower than the target. But this is done temporarily and openly known. While the anti-competitive practices among which dumping is pointed out, these modalities are understood as an unfair way of participating and competing in a market.
However, it is quite different to operate in a competitive market where some of the agents operate unfairly, contradicting the policy and commercial agreements of current legislation. In this sense, it is the GATT agreements (General Agreement on Trade and Tariffs) at the global level that regulate these practices in terms of international trade (exports and imports). While the States themselves and free trade agreements are those that regulate and prohibit these practices at the national level, thus preventing a market from bursting due to the operation of anti-competitive practices.
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