Price Discrimination by Dumping
When discrimination takes the fonn of dumping, it is regarded as an obnoxious practice. Dumping occurs when producers (usually monopolists) of one country sell their goods in another country at prices below those charged from the consumers in the country of origin. In some cases, it may pay a monopolist to sell his commodity in the foreign market below even his cost of production. The monopolist may ha e several motives for dumping: (a) to dispose of an over-stock casually produced due to wrong judgment of demand. (b) to develop new trade connections by charging low prices, (c) to drive competitors out of the foreign market whether foreigners or native products, and (d) to reap economies of large-scale production. monopolist only produced for the home market, he would produce 350 units and sell them at Rs. 7 a unit. This will give him the largest net revenue, i.e., Rs. 1,137.50.
Suppose he produced 450 units instead of 350. His total cost will be Rs. 450 X 2 ~ = Rs. 1.237.50. For 350 3 units his total cost would have been. Rs. 350 X 3- = Rs. 1,312.50. 4
Thus the monopolist can lower his total cost by Rs. 75 (Rs. 1,312.50 – Rs. 1,237.50) by producing 100 units more.
It will be to his advantage to produce these extra 100 units even if he has to destroy them. He can thus
sell these additional units in a foreign market with profit if he can charge a price just above the cost of transporting them. 0 foreign producer can compete with him at such a price. .Such a big advantage, however, is rare. We took an extreme case to illustrate the principle involved. Moreover, If the difference between the home price and the foreign price is greater than the cost of transporting the commodity back to the country of iLs origin, the commodity may be re-exported, unless high tariff walls stand in the way. Foreign countries usually raise high tariff walls against dumping, especially if it affects their own industries. It is a temporary phenomenon and does not confer any perm anent benefit on the country into which goods arc dumped. ‘The possibility of dumping in a foreign market will raise the home price if marginal costs are raising, lower if they are falling and leave it unaltered if they are constant.”(Benham).
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