Chapter 11: Pricing Decisions Ashley Gary-Roper Judith Smith

Dumping Dumping: The sale of a product in an export market at a price lower than that normally charged in the domestic market or country of origin. The problem with dumping is that it hurts a home country’s specific industry.

The Legality of Dumping According to the United States, dumping is an unfair trade practice that results in injury to the American industry. – Dumping occurs when imports in the US are priced at levels below the cost of production plus 8% profit margin or below the prevailing country. – The US Commerce Department is responsible for determining whether products are below-market prices, and the International Trade Commission determines if dumping has hurt US firms.

In Europe, anitdumping policies are watched by the European Commission. – A simple majority vote by the Council of Ministers is required before duties can be imposed on dumped goods. – Other punishments include provisional 6-month and 5-year duties. The Legality of Dumping

Results of the GATT negotiations include: – Agreement on the interpretation of GATT article IV. – Addition of “standard review” to the GATT’s 1979 anitdumping code, making it harder for GATT panels to dispute US anitdumping determinations. – GATT regulations have become more in line with US law. The Legality of Dumping

Avoiding Dumping Differentiate a product sold from that in the home market. – Ex) Wrench was changed from a car accessory to a tool. Make nonprice competitive adjustments – Using credit, which can substantially reduce price.

Price Fixing Price fixing: Secret agreements between representatives of two or more companies Price fixing is illegal. The purpose of price fixing is to ensure higher prices for products than normally expected if market was operating normally.

Types of Price Fixing Horizontal: competitors within an industry that market the same product to keep prices high. – Ex) Coke and Pepsi Vertical: manufacturers conspire with wholesalers and retailers to ensure certain retail prices are maintained. – Ex) Nintendo games

Transfer Pricing Transfer pricing: the pricing of goods, services, an intangible property bought and sold by operating units or divisions of a company doing business with an affiliate in another jurisdiction. “intracorporate exchanges” – Toyota

Types of Transfer Pricing Market-based transfer: policy that sets prices for intracorporate transactions at levels that are competitive in the global market Cost-based transfer: pricing based on analysis of internal and external costs – Ex) materials, labor Negotiated transfer: policy that establishes prices for intracorporate transactions on the basis of the organization's affiliations.