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Definition and Meaning:

Dumping (pricing policy) is a special case of price discrimination. Dumping is a situation in which a firm charges price for its goods in a foreign market is lower than either the price it charges in its home market or the production cost.

Dumping thus is the sale of surplus output of a firm on foreign markets at below cost price.

Dumping (pricing policy) also occurs when a firm sells its products at a higher price in the home market and at a lower price in the foreign market”.

Reasons or Factors:

A firm may resort to dumping for a number of reasons or factors which in brief are as under:

(1) Price discrimination: The first reason of dumping is price discrimination. If a firm has monopoly of a good in home market, but faces strong competition in foreign market, the firm will naturally charge a higher price in home market and lower competitive price in foreign market.

(2) Predatory pricing: The second major reason is predatory pricing. It is the practice of cutting prices of goods in an attempt to derive rival firms out of business.

(3) Surplus stock: A firm may resort to dumping to dispose off surplus stock.

(4) Economies of large scale production: The big firms where huge fixed capital is required for producing the goods may resort to dumping to avail of the economies of large scale production.

Dumping is illegal under international trade agreements of World Trade Organization (WTO). A nation can impose anti dumping duties only on production that are being dumped.