Chapter 20: Problem 9
Explain how predatory pricing could be a motivation for dumping.
Short Answer
Expert verified
Predatory pricing can be a motivation for dumping in several ways: 1) Market expansion: Firms using predatory pricing in their domestic market may engage in dumping to gain a foothold in foreign markets and eliminate competition. 2) Excess capacity: Firms creating excess capacity through predatory pricing can export products at dumped prices to recoup losses. 3) International competition: Firms may dump products in foreign markets to target and weaken competitors directly. 4) Price discrimination: Dumping allows firms to charge different prices in different markets, gaining a competitive advantage and maximizing total profits. However, both predatory pricing and dumping are considered anti-competitive practices and can be subjected to legal actions and trade restrictions.