Dumping (pricing policy)
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See also Social dumping - industrial relations / social justice issue; and SUTA dumping - tax
avoidance (US)
In economics, "dumping" can refer to any kind of predatory pricing. However, the word is now
generally used only in the context of international trade law, where dumping is defined as the act of
a manufacturer in one country exporting a product to another country at a price which is either below
the price it charges in its home market or is below its costs of production. The term has a negative
connotation, but advocates of free markets see "dumping" as beneficial for consumers and believe
that protectionism to prevent it would have net negative consequences. Advocates for workers and
laborers however, believe that safeguarding businesses against predatory practices, such as
dumping, help alleviate some of the harsher consequences of free trade between economies at
different stages of development (see protectionism). The Bolkestein directive, for example, was
accused in Europe of being a form of "social dumping," as it favored competition between workers,
as exemplified by the Polish Plumber stereotype. While there are very few examples of a national
scale dumping that succeeded in producing a national-level monopoly, there are several examples
of dumping that produced a monopoly in regional markets for certain industries. Ron Chenow points
to the example of regional oil monopolies in Titan : The Life of John D. Rockefeller, Sr. where
Rockefeller receives a message from Colonel Thompson outlining an approved strategy where oil in
one market, Cincinnati, would be sold at or below cost to drive competition's profits down and force
them to exit the market. In another area where other independent businesses were already driven
out, namely in Chicago, prices would be increased by a quarter. [1]
A standard technical definition of dumping is the act of charging a lower price for a good in a foreign
market than one charges for the same good in a domestic market. This is often referred to as selling
at less than "fair value." Under the World Trade Organization (WTO) Agreement, dumping is
condemned (but is not prohibited) if it causes or threatens to cause material injury to a domestic
industry in the importing country.[2]
International price discrimination
Pharmaceutical companies may charge customers living in wealthier countries (such as the United
States) a much higher price than for identical drugs in poorer nations, as is the case with the sale of anti-
retroviral drugs in Africa. Since the purchasing power of African consumers is much lower, sales would be
extremely limited without price discrimination. The ability of pharmaceutical companies to maintain price
differences between countries is often reinforced by national drugs laws and regulations. (or lack thereof)
Another example is textbooks. Publishers such as Prentice Hall and Pearson have low cost editions of
textbooks for countries such as India. The textbooks are often printed on cheaper paper, are paperbacks
and priced at 15-20% of the dollar price. This pricing has largely eliminated the practice of photo copying
these books.
Although not common in modern times, governments have traditionally raised revenues from tariffs. When
these are not flat tariffs, the government effectively sets the prices of goods that are not produced locally
and are only imported.
Even online sales for non material goods, which do not have to be shipped, may change according to the
geographic location of the buyer. A song in Apple's iTunes costs 79 pence (1.49 USD) for Britons but only
99 cents for Americans. (~50% more for the same song) These differences may arise because of
changes in exchange rates that occur much more frequently than changes in prices, or they may arise
because the license-holders (in this case, record companies) are enforcing their existing pricing policy on
new licensees or intermediaries.