Sellers are known to resort to various techniques for promoting their business and improving long-term profitability.
Dumping may be chosen as one of the methods for achieving this objective, even if it involves a loss in the short run. Thus, we may mention the following possible reasons for justifying dumping:
1. Dumping will be resorted to if the seller firm finds it profitable to do so. This requires that conventional pre-conditions for price discrimination should be met with.
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Firstly, if the elasticity of demand of the commodity to be dumped is higher in the foreign market and if the foreign buyers cannot resell their purchased quantities back to the buyers in the exporting country, dumping can be successfully practised by the exporting firm.
Secondly, if economies of scale can be reaped by increasing the production of the commodity under consideration, the seller may find it possible to export the additional output at a lower price and still reap more profit.
2. It is possible that the export market is still an untapped one. The seller firm, in that case, may plan to create the demand for its product in that market and retain it by offering its product at a low introductory price. This approach is particularly relevant in cases where the product is a new or a differentiated one.
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3. The exporting firm may resort to dumping as a strategy for expanding its sales by competing its rivals out of the picture or even out of existence!
4. These days, product differentiation ‘is a common feature of several consumer industries. It is, therefore, possible for an individual firm to penetrate a foreign market by lowering the export price of its product.
These days, it has become a common trend with most industries. The net result is that intra- industry exports have increased without commensurate addition to the profits of the firms. But no firm is in a position to retreat from this strategy.
5. Exporting firms may find that their dumping cost is being subsidised by the authorities.