Question

Explain how predatory pricing could be a motivation for dumping.

Short answer

Both are practices undertaken to push competition out and later earn huge profits.

Step-by-step solution

Step1. Introduction

Predatory pricing is a practice which pushes competition out by keeping the price as low as below the average cost of production, incur losses in short run and push competition out. Later, the firm rises the price due to higher concentration of power.

Dumping, a practice in the international trading arena, is a similar practice to push out the domestic competition.

Step2. Explanation

Predatory pricing could be a motivation for dumping due to the uncanny similarity between the two practices. Both of the practices focus on selling the goods at prices below the average cost of production and incur losses in short run to force out businesses to gain monopoly power.

The only difference being, dumping is practiced in international trading, to force out the domestic businesses and gain control over their market.