Dumping – What it consists of

Dumping is a marketing technique that consists of selling products below their acquisition or manufacturing cost price , in order to be more competitive in the market.   

It is for this same reason that it is considered a technique of unfair competition in the market , since at a legal level there are restrictions, limitations and prohibitions that consider the sale of products at a price lower than their cost as unfair. Therefore, it is not advisable to use dumping, as it may even be condemnable according to the World Trade Organization and its GATT agreement. 

Índice

  1. Objectives of dumping
  2. Characteristics of dumping
  3. Types of dumping

Objectives of dumping

 

To properly understand the definition of dumping, you must take into account its main objectives:

  • Compete more effectively in the market:  by offering cheaper products than other companies in the same field.

  • Monopolize a market:  by selling products at a price lower than the cost price, you will probably oust the competition and end up bankrupting their companies. At that moment you can apply a new strategy, such as raising prices, since you will have monopolized the market.

  • Break into a new international market or markets:  by having competitive prices, it will be much easier to access new markets due to price inequality.

Characteristics of dumping

The characteristics of dumping are very simple, as it simply consists of lowering the prices of your products below the cost level in order to displace the competition and be chosen by consumers.

But, if a company sells below acquisition prices, how can it survive? There are different situations, but dumping is normally practiced when a certain subsidy or aid has been received that allows the company to maintain prices below the standard for a time. It is also possible that the company can quickly build a large customer base and then be able to raise prices after gaining the trust of consumers.      

Types of dumping

As we have seen in the definition of dumping, it consists of selling products at a price lower than the cost or manufacturing price. However, this technique can occur in different situations for different purposes , so let’s get to know the types of dumping: 

  • Occasional dumping:  When a company has surplus products or stock that it wants to release from its warehouses quickly, it carries out sporadic dumping by offering these products below their cost price to get them off their hands quickly.  

  • Predatory dumping: It is the dumping that we know as such and that we have explained throughout the article, that is, the one that sells at a loss to eliminate the competition and monopolize the market.  

  • International dumping:  This involves entering markets in other countries at a lower price than those products have in the country of origin.  

In short, although dumping is not illegal as such, there are certain organizations and laws that regulate it, such as the WTO with its General Agreement on Customs Tariffs and Trade, of which many countries are participants. Although it is a technique that allows you to quickly enter a market, it is totally inadvisable to put it into practice due to the repercussions it may have.