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Economics: Price Discrimination And Dumping

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Question:

Discuss about the Economics for Price Discrimination and Dumping.

 

Answer:

Introduction

In the domestic as well as in the international market the producers and the sellers often engage in several economic activities in order to maximize their revenues and sales. One such activity is the activity of price discrimination and the other one is that of dumping.

Price Discrimination and Dumping

Price Discrimination- The price discrimination is one of the pricing strategies of the sellers with the help of which the sellers charge different prices from different people for the same commodity or service. For a seller to discriminate prices for the same product the markets should be differentiated geographically, by distance or by time and there should be no overlapping of market. This is required to stop arbitrage, that is the phenomenon in which one can buy the commodity from a market with lower price and sell in another market at a higher price. Price discrimination is done mainly in order to charge the consumers according to their purchasing power and willingness to buy, thereby increasing the revenue of the seller (Cantono and Marchionatti 2012).

Dumping-A type of predatory pricing strategy which the seller undertakes, specifically in the context of international trade, in which a seller sells a product at a lower price in the international market than the amount that the seller charges in the domestic economy. This is done by the seller in order to capture a greater share of the international market so as to increase his or her revenue and for the purpose of dumping, the sellers often keep the international prices lower than their cost of production (Black, Hashimzade and Myles 2012).

 

Difference between price discrimination and dumping

Though the two phenomena, price discrimination and dumping apparently looks like the same and dumping may look like a special case of price differentiation only, however, there are differences between the two. Price discrimination is mainly done in order to reap the highest possible profit the sales by selling at higher prices to those with lesser elasticity of demand and at lower prices to those with higher elasticity of demand. On the other hand, dumping is a pricing strategy which the sellers undertake in order to increase their international market share, which may increase their long term revenue and prospects (Kerr and Perdikis 2014).

Similarity between price discrimination and dumping

Price discrimination and dumping may appear to be the same when the seller sets the price lower in the foreign country than in the domestic currency and when it is not clear whether the seller is selling at a price below its cost of production in the international market. On the other hand, if the cost of production of the seller is known and the prices charged by the sellers, both in the domestic as well as in the international market are higher than the cost of production, then it may be asserted that the seller is resorting to price discrimination and not dumping. The two phenomena can also be differentiated when the price charged by the seller in the domestic market is lesser than what he or she charges in the international market (Cowan 2012).

 

References

Black, J., Hashimzade, N. and Myles, G. eds., 2012. A dictionary of economics. OUP Oxford.

Cantono, S. and Marchionatti, R., 2012. Dumping as price discrimination: Jannaccone’s classic theory before Viner. Journal of the History of Economic Thought, 34(2), pp.193-218.

Cowan, S., 2012. Third?Degree Price Discrimination and Consumer Surplus. The Journal of Industrial Economics, 60(2), pp.333-345.

Kerr, W. and Perdikis, N., 2014. A Guide to the Global Business Environment: The Economics of International Commerce. Edward Elgar Publishing.

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