Question

You have adopted a​ two-tiered pricing policy for foreign​ markets, but have heard that there are risks involved. One of the problems pertains to setting price differences that knock out competition in their foreign markets by presenting lower prices in the foreign markets than domestic markets. What is this​ called?

a) Dumping
b) Import tax
c) Subsidization
d) Trade embargo

Answer 1

The practice of selling goods in foreign markets at lower prices than in domestic markets to undercut competition is known as dumping, which is a form of predatory pricing.

Step-by-step explanation:

When a company adopts a two-tiered pricing policy for foreign markets and sets prices lower than in its domestic market, potentially to undermine competition, this practice is known as dumping. Dumping involves foreign firms selling goods at prices below the cost of production for a short period of time, with the strategic intent to drive out domestic competition and then subsequently raise prices. This can be considered a form of predatory pricing, and it raises concerns about fair trade practices. Anti-dumping cases explore the economic theory behind dumping and its practical policy implications, considering whether it makes sense to limit such practices to protect domestic markets.