John D. Rockefeller built his Standard Oil empire by opening gas stations close

Question

John D. Rockefeller built his Standard Oil empire by opening gas stations close to rival stations and selling petroleum below cost in order to drive competitors out of business. More recently, some countries have been charged with "dumping", a related practice in which nations attempt to garner large segments of an export market by selling goods below cost in target markets. Should these practices be permitted? Who is injured by such activity? As a consumer, why should I care about competitors selling at prices below cost?

Explanation / Answer

Let's assume there are only two countries in the world. The United States and China. China has large manufacturing sector and produces all kind of goods. The US also has a thriving manufacturing center and they also produce the different variety of goods.

China wants to export its goods to the US market and to capture the market he is selling goods below the market price. China is successful in gaining considerable market share but this raises few concerns:

Conclusion: Dumping of goods is considered as a bad practice because it drives the local firms out of business, and increase job loss in those areas. The goods may be available at lower cost for the consumers initially but as the exporting country gets a monopoly power, in the long run, they increase the price and make an undue profit out of it. Importing country gets dependent on the other country for several goods like at the present US has become dependent on China for different Chemicals. So taking into account all the above factors dumping should not be allowed.   

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