The term dumping refers to an anticompetitive pricing approach that is typically associated with international trade. Dumping occurs when a company exports, or sells, a product at a price that is below that charged in its home country or lower than its production cost.
Dumping is considered an anticompetitive practice, since it restricts trade and decreases competition in a given market.
While the term dumping is typically associated with international trade, it can occur in domestic markets too. A company will engage in dumping to drive competitors out of the market. Once competitors have been eliminated, the company can then increase prices to recapture lost profits.
Most nations have laws that prohibit dumping. In the United States, dumping would be illegal under the Sherman Antitrust Act of 1890 and the Clayton Act of 1914. Interestingly, under the World Trade Organization Agreement, dumping is not prohibited unless it threatens the domestic industry of the importing country.
Investigations into international dumping practices typically focus on scenarios where the export price differential is greater than 2%. That is to say, the export price is more than 2% lower than the price of the product in the exporter's domestic market. The volume of imports must also be fairly significant, and account for more than 3% of the country's volume of imported product.
In addition to dumping, anti-competitive practices may include dividing markets, boycotts, bid rigging, exclusive dealing, tying arrangements, price fixing, disparagement, as well as the unethical collection of business intelligence.
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