Sporadic, Predatory, and Persistent Dumping explained by three important types that are customary to distinguish among these.
Dumping occurs when a commodity is sold to foreign purchasers at a price lower than the price changed for the identical product on the domestic market.
The word identical makes it difficult to establish, the existence of dumping, because in making international price comparisons full allowance must be made for differences in specifications, including package and other superficial features.
An international standard exists for judging whether a commodity has been dumped. it is customary to distinguish among three types of dumping.
Now we explain Sporadic, Predatory, and Persistent Dumping in detail.
It is disposal on the foreign market of an occasional surplus or overstock. It is tantamount to a domestic sale and its effects are negligible.
It occurs when a large home-based firm sells abroad at a reduced price in order to drive out competitors and gain control over the market, at which time intends to reintroduce higher prices and use its newly acquired monopoly power to exploit that market.
It is a direct outgrowth of profit-maximizing behavior by monopolists. Consider a manufacturer who holds a monopoly position on the domestic market, where he is also protected from import competition by transport cost or govt. restrictions.
In foreign markets, on the other hand, he faces the competition of producers from the host country as well as from third countries.
Now we explain it by diagrams
A geometric representation of dumping is shown in these diagrams. In the first panel, MRH is the marginal revenue of the home market and in the second panel, MRF is the marginal revenue of the foreign markets.
The two marginal revenue curves (MRH and MRF) are added horizontally at each price to obtain the total marginal revenue (MRT) in the last panel.
One condition necessary for all forms of dumping is a separation of the domestic and foreign markets, otherwise, it is always possible for a foreign purchaser to resell the product on the home market and cut into the monopolist’s profit.
Thus, dumping is essentially price discrimination applied to the international arena. indeed, it is easier to practice price discrimination internationally than nationally.
In actual practice, it is difficult to distinguish the various types of dumping. Although predatory dumping is demonstrably harmful to the importing country, the same cannot be said of long-run dumping, which lowers the price to consumers.
Yet govt. policy, often formulated under pressure from import-competing industries, applies to all of them. The most common measure to counteract dumping in the importing country is the imposition of anti-dumping import duty.
Such a duty, sanctioned by GATT, is allowed for in the American tariff legislation, but its imposition requires elaborate proceedings to prove the existence of dumping.
A form of dumping, called diversionary input dumping occurs when imports are made out of materials that were dumped in the country where the finished goods were manufactured.
The 1988 US Trade Act mandated the administration to negotiate the banning of such dumping.
In the past, most dumping complaints came from traditional industries such as shoes, textiles, and steel, today they come from the high-technology arena as well.
In many cases, a flurry of dumping complaints to dispense with the dumping investigation and instead negotiate VERs with the “Offending” countries.