Trade Dumping and Elasticity of Demand – Situational Analysis

February 1, 2019 admin 0 Comment

iii. Where authorities are involved, the objective of dumping may be a non- economic one, such as, weakening the economy of a political rival.

iv. By itself, dumping need not be profitable for the exporter. It may become so with the above-described methods of providing direct or indirect subsidies by the government. In addition, if the production of the dumped commodity is under increasing returns to scale, its Profitability may increase with an increase in its output.

v. Dumping may be only for a short period, or even in repeated episodes (termed sporadic dumping) in order to out-compete rival suppliers and capture their markets.

vi. Just as dumping may be helped by the government of the dumping country, it may be strongly resisted by the government of the importing country through restricting imports with tariff duties, quotas or even by outright bans.

When it comes to dumping by an individual seller (unassisted by the government), conventional textbook conditions for successful and profitable dumping would apply. Accordingly, we note the following:

i. A monopolist splits up an existing market into sub-markets so as to increase his profit. In contrast, an exporter dumps his produce for capturing and expanding his market.

ii. Normally, a monopolist adopts a policy of price discrimination on a long term basis. In contrast, dumping may be only for a short period.

iii. Like a discriminating monopolist, the exporter should be able to divide his market into export and domestic sub-markets in such a way that the buyers in the export market are not able to re-sell the commodity back to the buyers in the domestic market.

iv. The elasticity of demand for a dumped product in the foreign market should be higher than its elasticity in the home market.