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Dumping refers to the sale of a product below the cost of producing it with an objective to increase market share and get rid of competitors. As a strategy, dumping can be adopted by companies that have accumulated large reserves and can afford to sell their products at a loss for a fairly long duration of time. The dumping of products in the markets of other companies is also aided by governments that provide substantial subsidies.
The demand for products available at a cheaper price is always higher. By dumping their products, companies can ensure that for a considerably long duration of time consumers only buy their products. As the products of their competitors no longer has a demand the competitors’ sales revenue decreases by an extent that they cannot withstand financially and are forced to shut down. The company involved in dumping now enjoys a monopoly and can increase the price of its products by a large extent as there are no competitors left that the customers could buy from.
Dumping is a very unethical practice. When done by large international companies aided by government support it can result in a lot of damage to the economies of the countries that have been targeted. It destroys the industrial capacity of the country which is usually in the early stages of development. The shutting down of industries also leaves a large number of people employed and has the potential of destroying the economies of small nations.
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