Market regulation and protection - a return to the future: part 2.

Have you heard this one? Well, three merchants in prison meet and the first of them says: “There was such interest in my goods that I was able to set prices well above the cost of production. But I was imprisoned for abusing my monopoly position. ”The other just chuckles ironically and says,“ Well, that was an opportunity! I set prices well below cost to gain more customers. They locked me up at dumped prices and destroying competition. ”The third leans against the wall, smiles, and just remarks,“ The rest of us didn't want to end up like you, so we all kept the same prices. They locked us up for price agreements. "

Logo of the Office for the Protection of Competition
Logo of the Office for the Protection of Competition

V the first part In our mini-series, which deals with regulations and supposed "market protection", we looked at the topics freedom of choice, consumer protection, importance open markets and how it works competition. I also recommend reading a kind of "nipple", which deals with the topic of "What is a monopoly?"

In this second part we will look at dumping and the effects of anti-dumping policy. Ok lets go!

What is it all about? dumping? Many times we may encounter someone complaining about unfair competitionwhen someone in the market applies predatory or predatory dumping. What is it all about and should we be afraid of any dumping at all?

Dumping means that the manufacturer sells at a lower price than its costs. Some say that dumping aims to eliminate competitors and gain a kind of dominant or even monopoly position on the market. A company with a large amount of capital, ie the "predator", is trying to do this strategy push competition out of the market.

Because a large company has an abundance of capital, many think that the company will withstand the loss and that it relies on other competitors not to last because they will not be able to sell at such low prices for so long. As a consequence, the departure of competition from the markets is alleged, thus clearing the predator's space in the market, which the predator will use to greatly increase the price, which will "compensate" him for previous losses.

And now let's be honest - the thesis is mentioned above logical?

Imagine a hypothetical mobile retailer phones. This seller decides to sell "his" mobile phones at a lower price than he bought them, so he sets the price below his cost. This is to eliminate the competition and everyone started to buy mobile phones only and only to him.

Other mobile phone dealers have resisted this price battle for a while, but in the end they go bankrupt one by one. Our predatory dealer is happy. But why?

Our predator has gained the majority in the mobile phone market, but at what price? He has exhausted his savings, therefore, must increase the price of their phones. That probably won't seem like a problem to you, after all dominates the market. The problem, however, is that our predator does not control the market, but the market controls him - our predator, even though he has a majority in the market, has to watch his prices. If he increased the prices of his phones, he would make a profit. And profit that second one is the biggest attraction for entering the market for us, or not?

I'm not saying that there were no cases of predatory dumping, but I'm not sure if the "predators" they earned. But what I'm sure of is that competitors often accuse a company of dumping just because the company is cheaper and more successful than themselves.

How can we even be sure that the company is selling below cost? What if the company just gets rid of excess inventory? What if some "costs" are already sunk costs?

We all know each other sales. It's actually about the most widespread form of dumping - Why are you on her? no one complains? Or maybe very popular introductory prices - After all, this is too dumping, so why don't different authorities and courts solve this problem as well?

The fact is, some imaginary "Predatory" dumping is often just a scarecrow used by one group of producers to harm another group of producers. Most often it is about domestic manufacturer, fighting for the introduction of various tariffs, who use one of their arguments dumping by foreign producers, which, according to them, “threatens domestic market and competition ’.

Anti - dumping policy has essentially no meaningful criteria for assessing it price below cost. Nevertheless, under pressure from the domestic lobby, governments are engaged in various "anti-dumping proceedings", which are sometimes really ridiculous, in which reason sometimes remains common ground.

As a beautiful example, there was a problem golf carts from Poland, when the US Department of Commerce initiated an anti-dumping proceeding against their imports. However, the Ministry could not compare the prices of those carts with the price on the Polish market because the defendant the manufacturer did not sell any carts on the Polish market. The Authority therefore decided to use the price for comparison purposes Canadian carts in the Canadian market. Of course - the price of Canadian trucks in Canada was higher than the price of Polish trucks. This was enough for the Ministry to prove that "beyond a doubt" it was demonstrated that the Polish truck manufacturer performed on the US market. dumping.

More parts of the series here

0 comments

  1. Have you heard this one? Well, that's what three merchants in prison will meet - the third asks stubbornly - so what are you here for? -all 3 will just smile before prej bejvlay three companies - did you hear that?

    Not that I'm a supporter of regulation - I'm just trying to outline other arguments for discussion.

    I often consider dumping prices covered by "actions" to be the most glaring manifestation of dumped prices in the Czech Republic, especially for agricultural products, where this often led to liquidation of suppliers. The final price can often be lower than the producer's real production price. peace of mind, because a large part (of course the max that is allowed by regulation) transfers to the supplier ..
    However, this is no longer the classic predator, it just behaves the same as its competitors (not that it would be pushed to do so - this is how these chains have often entered the market ..) in a more or less stable market ..

    By that I mean: the dumped price may not only have an adverse effect on competition, but also on other entities or entire industries.)

    ("Events" as exceptionally significantly discounted goods are therefore not subject to regulation ..- however, there are always some, which, at least in my opinion, denies it.)

    Whole states within not only the EU behave differently as predators.

    The idea of ​​a truly "free" market in my head ends either:

    1 once a global company (thanks to the merger and merger which is always more advantageous, and ultimately the best being a global monopoly ..)

    - however, this could be prevented by regulating the concentration of power (whether economic, financial, military, information ..)

    2 by two 1984-style companies from Mr. Orwell.

    Otherwise, I recently heard a nice argument for thinking (in connection with the need for banks and their influence on the markets, etc.) that:
    In China, the numbers of traders were regulated several thousand years ago .. just so that it would not be possible for everyone to sell and buy and rice would not be more expensive than gold ..
    (It must be added that commodity trading originated in China.)

    to Petr:
    People who have encountered this condition from the other side ..

    JJ similar unfortunate consequences of undervaluing prices, usually with a reduction in quality, or various confusion of customers is at least in my opinion in our country also observable at every step (starting from the labor professions)

    Otherwise, given that, in my real price of coal (reflecting the real costs of all the unfortunate side effects), they are still somewhere other than market prices, that these additional costs (usually paid from the state budget) are not part of our energy price ( however small the price) means that the price of coal is de facto regulated, with over 50% of our electricity being produced from it, and we therefore have an “undervalued” whole market - as well as, of course, undervalued prices for transport, oil, etc .. 🙂

  2. Lo Lukáš, but explain it to the wholesaler - when he watches over it; o) whoever breaks it will not simply sell it - get it where you want, he is the exclusive European importer; o)

  3. Peter, they "dumped goods" and at the same time "sold for 20 crowns of profit" (ie for 2,5% of profit) do not go very well together. If that was enough for the manufacturer, why not.

    As written in the article - one manufacturer can get rid of current competition in the market in this way, but will not be able to subsequently increase the price if it does not want to give room to new competition, which could be maintained in the same way.

    As a result, it is the consumer who earns on it. And that's probably good.

  4. The practice is still elsewhere. When you run a store (such as an online store) and sell headphones, for example, the price is already dictated to you by the wholesaler. He just sells your headphones for YYY and you have to sell him for XXX and never cheaper.

    That it doesn't make sense? That it is illogical, discriminatory, etc.? It also came to me that way - I solved various ways to get it on the market cheaper and be the cheapest. But then I hardly came across from the wholesalers - they called + a letter came with a stripe - that I was breaking the rules and selling below the set price, and that in the event of another mistake, they would contact other wholesalers and stop supplying us. That the goods in question have a price and will NOT be sold cheaper.

    I didn't get it. I was furious. I got angry and cursed them into everything.

    But then, by complete coincidence, I listened to two independent people from the field. People who have encountered this condition from the other side. Confessing how their competition completely destroyed the whole industry, just because they dumped the goods and they had a profit of 20 crowns on it (for a product for 800 CZK !!!). With the fact that he ends up in the field, etc.… They complained that large customers do nothing about it, that they are only after a turnaround, and that these bastards who go below the price do not watch…

    So? ;O)

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