International Price Discrimination and Dumping_v2

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International Price Discrimination and Dumping : 

International Price Discrimination and Dumping 1 Niraj Sharma | Ayush Vij

Agenda : 

Agenda International Price Discrimination Dumping Price Discrimination and Social Welfare Price Discrimination and Equity Conclusion 2

International Price Discrimination : 

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 3

Key Features : 

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 4

Representing it Graphically : 

Representing it Graphically 5 MRh ARh ARw=MRw B X Y MC C O R M PH PW E D F . K1

Example 1: Pharmaceutical Companies : 

Example 1: Pharmaceutical Companies Huge price difference for same medicines Ex. USA & Canada 6

Example 2: Textbooks : 

Example 2: Textbooks Textbooks cheaper in developing countries vs where they published Example: Low Price Edition Textbooks in India 7

Dumping : 

Dumping In economics, "dumping" can refer to any kind of predatory pricing (selling at an unfairly low price). Predatory Pricing Domestic Firm selling at lower price in home market 8

Definition of Dumping : 

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. Dumping Foreign firm selling at lower price in other country. 9

Dumping : 

Dumping When, Export Price Comparable domestic Price Export Price to a Third Country Cost of Production Plus a Reasonable Addition for Selling Cost and Profit Normal Value 10

Dumping Margin : 

Dumping Margin minus Normal Value of the like article Export price of product under consideration Domestic price Rs. 150 Export price Rs. 100 Dumping Margin = 150-100 = Rs.50. Dumping Margin = 33% 11

Domestic Industry : 

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. 12

Reasons for Dumping : 

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 13

Reasons for Dumping : 

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. State Trading Dumping Selling at lower price in order to gain hard currency. 14

Reasons for Dumping: Summary : 

Reasons for Dumping: Summary The nations dump products to Eliminate Competition Secure Monopolies Increase Share of International Export 15

Dumping: Factors : 

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 products that were banned in their domestic market. 16

Implications of Dumping : 

Implications of Dumping Dumping results in the following: Hurts a country’s domestic industry and producers Impacts the sales volume Hurts the market shares Triggers decline in profitability Leads to job losses Cause material injury 17

Antidumping : 

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. Provides protection to the domestic producers and the industry. Rectifies unfair trade practices pertaining to dumping. 18

Price Discrimination & Social Welfare : 

Price Discrimination & Social Welfare 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. Sometimes without price discrimination no output of the commodity is possible. 19

Price Discrimination and Equity : 

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. 20



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