Dumping price finds its application in the global market in competition against trade restrictions. This economic concept is one of the most striking manifestations of competition in this field of activity. This practice was widely used in the 30s of the 20th century. This was a period of a rather serious crisis in the economy with sales problems and increased competition in the world market.
Definition
Price dumping is the sale of any product abroad at a cost that is lower than its usual rate. The specified economic situation may cause substantial material damage to the industry that was created on the territory of the importing state.
The “regular price” referred to is the value of the counterpart product at which it is sold in the state where it is produced, with the normal development of all trading operations.
By analogous goods is meant a type of product that has characteristics similar to the specimens under consideration.
Calculation of the regular or normal price
In the absence of intrinsic value of the goods, the usual price is determined by the highest cost of its counterpart intended for export to another country. Also, this indicator can be calculated as the sum of production costs with the addition of reasonable costs for the sale. Thus, the dumping price uses the calculation of its usual indicator taking into account the natural and acquired competitive advantages of exporters of this type of product. Such advantages are expressed in the cost of energy, the location of production, the availability of independent sources of raw materials, as well as advanced technologies.
Known material damage
The dumping price is always accompanied by material damage, which is proof of the adverse economic consequences of the import of goods at an unprofitable value. Such negative factors occur for those industries whose finished products compete with goods imported at specified prices.
Scope of dumping
Dumping price can be used due to:
- commercial sector resources;
- government subsidies provided to exporters.
Commercial business practice involves the use of such types of dumping:
- constant export at a price lower than usual;
- random - temporary episodic sale of goods on the international market at a low cost due to the large accumulation of stocks of goods from exporters;
- the opposite, involving the sale of goods on the domestic market of the state at a cost lower than export (such price dumping is used for significant fluctuations in exchange rates).
The dumping price in government procurement is not only a deliberate reduction in the cost of sales of goods, but it is also a certain discrimination in this area, in which there is a significant underestimation of them in one market with the simultaneous sale of high analogs in another. Thus, the use of dumping is associated with the monopolization of markets and the use of unreasonably high prices.
Economic prerequisites for using dumping
The formal economic prerequisite for the implementation of dumping in practice is the difference in the elasticity of demand for the price of a particular type of product in the foreign and domestic markets. So, when this indicator is not reached by the domestic market, the corresponding coefficient of the foreign market, there is a fluctuation both in the direction of increase, and in the direction of lower prices to a lesser extent in the domestic market. Therefore, in this case, there is a foreign expansion of sales more than its domestic reduction.
Dumping allows you to provide primarily a win for the exporting company, which has the opportunity to increase its share in the international market. At the same time, expenses related to price competition in the domestic market are compensated. Thus, the total sales volume is increasing, and this company may receive additional profit.
Summing up what has been said in this article, it should be noted - when determining what a dumping price is, it is indicated - with a rather successful use of the moment, exporters can receive significant income.