Dumping is the continued practice of selling products and services below their cost price.
It is an Anglo-Saxon term derived from the term “dump” which means pouring or spilling. It is used as a synonym for selling below the manufacturing price or cost of a product with the aim of bursting the market and competition.
Initially dumping was related as a practice of international trade ( international dumping ). So that an export moves to another country below the cost price to try to separate the local competition. However, currently dumping arises in all fields and markets, both international and local. Although in local markets it is more commonly known as predatory prices .
Types of dumping
There may be several types of dumping, depending on the origin and motivation achieved:
- Social: When it is required by law to have low prices on some products, such as basic subsistence products.
- Exchange rate: Motivated by variations in rates, so that in some countries the exchange rate causes products to be sold well below their competitors and national costs.
- Official: When the products have subsidies and tax exemptions to be able to sell at a low price.
- Predatory: It is properly known as dumping, since it consists of selling conscientiously and manifestly at prices below cost either to enter a market or formalize monopolies . It is about causing short-term losses to get open benefits in the medium and long term, destroying the surrounding industry.
Development of anticompetitive practices
Dumping as a practice has always really existed. It is common to find marketing campaigns in which a product is given or sold at a much lower price than the target. But this is done temporarily and openly known. While anti-competition practices, including dumping, understand these modalities as an unfair way to participate and compete in a market.
However, it is quite different to operate in a competitive market where some of the agents operate unfairly, contradicting the policy and commercial agreements of current legislation. In this sense, it is the GATT (General Agreement on Trade and Tariffs) agreements that regulate these practices in international trade (exports and imports). While the States and free trade agreements themselves regulate and prohibit these practices at the national level, thus preventing the market from bursting due to the operation of anti-competitive practices.