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Chapter 34: Q. 9. (page 832)

Explain how predatory pricing could be a motivation for dumping.

Short Answer

Expert verified

Those who practice predatory dumping are forced to sell at a loss until the competition is wiped out and monopoly states is achieved.

Step by step solution

01

Step 1. Meaning of predatory dumping. 

It is a type of anti-competitive behaviour in which a foreign company prices its products below market value in an attempt to drive out domestic competition.

02

Step 2. Predatory pricing for motivation for dumping.

Basically, when imports can be sold at extremely low prices, domestic firms would have to match those prices to sustain in the game. Competitive matching prices would imply selling under cost and, therefore losing money. Firms cannot sustain losses forever. When the domestic firms leave the industry due to heavy loss, importers 'take over', raising prices to monopoly levels to cover their short term losses and earn long term profits.

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