International Price Discrimination and Dumping

International Price Discrimination and Dumping
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Niraj Sharma | Ayush Vij
4/19/12
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Agenda
International Price Discrimination Dumping Price Discrimination and Social Welfare Price Discrimination and Equity Conclusion
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International Price Discrimination
Price discrimination across borders When a producer sells in two markets
One where he faces perfect competition, and Another where he enjoys monopoly
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Key Features
Demand curve is perfectly elastic in the market where he faces perfect competition Demand curve is sloping downward in the market where he has monopoly
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Representing it Graphically
Y B P H P W C O R
.
1
M C E D
K F ARw= MRw
M Rh
AR h X
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Example 1: Pharmaceutical Companies
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Huge price difference for same medicines
Ex. USA & Canada
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Example 2: Textbooks
Textbooks cheaper in developing countries vs where they published Example: Low Price Edition Textbooks in India
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Dumping
In economics, "dumping" can refer to any kind of predatory pricing (selling at an unfairly low price).
Pr ed at or y Pr
Domestic Firm selling at lower price in home market
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Definition of Dumping
In Context of International Trade Law:
The act of a manufacturer/firm in one country exporting a product to another country at a price which is either below the price it charges in its home market or is below its costs of production."
Therefore, it is the act of charging a lower price for a good in a foreign market than one charges for the same good in a domestic market.
D u m pi ng
Foreign firm selling at lower price in other country.
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Dumping
When, Export Price Normal Value
Comparable domestic Price Export Price to a Third Country Cost of Production Plus a Reasonable Addition for Selling Cost and Profit
1.
2.
3.
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Dumping Margin
Normal Value of the like article minus Export price of product under consideration
Export price Rs. 100
Domestic price Rs. 150 Dumping Margin = 150-100 = Rs.50. Dumping Margin = 33%
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Domestic Industry
The domestic industry is all domestic producers of the product concerned, or those whose collective output constitutes a major proportion of total domestic production of those products.
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Reasons for Dumping
Predatory Dumping
The practice of cutting prices in an attempt to drive a rival out of business or create barriers to entry for potential new competitors.
Persistent/Strategic Dumping
If a firm has a monopoly in its home market but faces strong competition in a foreign market, it will charge a higher price in the home market
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Reasons for Dumping
Cyclical/Sporadic Dumping
Selling at low price because of over capacity due to downturn in demand.
Market Expansion Dumping
Selling at lower price for export than domestically in order to gain market share.
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Reasons for Dumping: Summary
The nations dump products to Eliminate Competition Secure Monopolies Increase Share of International Export
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Dumping: Factors
Subsidies
Subsidies (in the exporting country) can lead to aggressive dumping, since goods can be sold profitably at a price that is cheaper than the cost of manufacture.
Banned Products
History also sheds light on the numerous manufacturers that have used dumping to sell off
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Implications of Dumping
Dumping results in the following:
Hurts a countrys domestic industry and producers Impacts the sales volume Hurts the market shares Triggers decline in profitability Leads to job losses Cause material injury
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Antidumping
Due to the above narrated and other reasons, countries have incorporated strict anti-dumping measures. The very purpose of antidumping measures is to prop up domestic producers.
Advantages of anti-dumping
Re-establishes fair trade and fair competition.
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Price Discrimination & Social Welfare
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Difficult to say. Partly depends upon whether with the price distribution , total output increases or not. Keeping output effect away price discrimination will adversely affect the social welfare. Under monopoly without price discrimination the output is less than the output with price discrimination.
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Price Discrimination and Equity
Price is raised for rich and lowered for the poor. It has a redistributive effect. Often done by governments to reduce inequalities of personal real income.
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EXAMPLES
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Conclusion & Comments

International Price Discrimination and Dumping - v2

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