Having an eCommerce is not a business where everything goes “smoothly”. In fact, you can run into a lot of problems.

As if e-commerce wasn’t complicated enough competing against suppliers and distributors from all over the world, there will be companies that try to use dishonest strategies to gain market share and, ultimately, profits. And one of them is dumping.

Imagine that you have a competitor who decides to lower the prices of the same products you sell well below cost price. Yes, losing. Well, that is what is called dumping and it is a practice that is done to “bust the market”, but also the competition. We tell you about it.

What is dumping?

We can define dumping as a practice in which a trade or company sells products or services at a price well below cost price.

In other words, we are talking about a negative activity in which the company decides to set very low prices for its products, even assuming losses, in order to enter a market “in a big way”, since it would get all the sales for those prices.

You should know that this practice is condemnable, that is, it is an unfair practice and prohibited both by the World Trade Organization and by international directives and agreements. Specifically, there is the General Agreement on Trade and Tariffs, also known as GATT, which seeks to defend companies in commercial markets.

What are the objectives of dumping?

Dumping is not something that is done for the sake of it, it always has an objective. Normally this is to overcome the competition, i.e., it seeks to burst that market by putting itself before its competition. Why? Because it seeks to have a monopoly on that market. And it does so by skipping the usual and normal steps of the market.

For example, imagine that a company puts a product whose cost is 2 dollars. And they sell it for fifty cents. Everyone will want to buy, which will cause the competition to run out of any sales and they get it all. What do they do? Dump the other companies, putting themselves ahead as the “kings” of the market and leaving those companies with no customers.

Why dumping is bad

Think you have an eCommerce where you sell one product. Suddenly, another eCommerce company comes in with rock-bottom prices. People go to buy from them, because they always go, at the same quality, to the cheapest. Therefore, you stop selling and that has repercussions on your business; you stop making profits and start making losses.

More than that, you start to lay off people and, if this continues over time, you end up deciding to close the business.

Dumping causes business closures and loss of many jobs. That is why it is a negative, unfair and prohibited practice.

But do not think that it is only bad for businesses, because it is also suffered by customers. At the beginning, for them everything is benefits, because they buy cheaper, they have products of the same quality for which they had to pay more before, etc. But, when that company sees that it no longer has competition, it starts to raise prices, and does not leave them at what the other businesses had, but goes further, making them more expensive. At the end of the day, it no longer has competition because it has taken over the monopoly.

And those losses he suffered at the beginning, he recovers them with big profits. Do you understand now that this practice is bad for everyone?

What types of dumping exist

Despite being a practice that is not good, it is actually carried out by many companies and, depending on its origin and purpose, it can be classified into different types of dumping.

Legal dumping

This occurs when, by law, stores in a given country are forced to offer certain products at a low price.

It usually affects basic consumer products, but also those related to health.

Tax dumping

This is when the products you want to sell have some kind of tax exemption or subsidies that allow them to be sold at a low price.

In this case, that subsidy or exemption allows the company to support sales at low prices even though they make little or no profit.

Foreign exchange dumping

From its name you will have realized that it refers to rate variations. There are some countries that cause the exchange rate to affect products by artificially depreciating their currency so that they can be sold below the price of competitors.

Trade dumping

This is actually what is known as dumping. It is a fully conscious action on the part of the company to lower prices below cost with the aim of entering a market and gaining a monopoly on it.

In the short term it causes losses but, in the medium and long term, it obtains many benefits, in addition to “destroying” competing companies.

What to do if you are being dumped

When a market encounters a company that is dumping, the most normal thing to do would be to report it to the competent public bodies.

In the European case, it would be the European Commission, either directly or through a Member State. This complaint must reach the Antidumping Service of the Commission where, in writing, there must be evidence of dumping, the injury being caused and the factors (facts, consequences…).

In the case of the United States, the International Trade Administration is the competent body to fight against dumping cases abroad.

 

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