Economies of Scale, Imperfect Competition.pptVIP

* Chapter 6 Economies of Scale, Imperfect Competition, and International Trade 中国建筑人才网 In last section, We neglect price discrimination (such as dumping) in the imperfect competitive model which give rise international trade. Clips: 中国鞋如何迎战反倾销连环箭 一、Dumping(倾销) The Economics of Dumping In reality, firms do not charge the same price for goods that are exported and sold domestically, it is the price discrimination. Price discrimination: The practice of charging different customers different prices. Dumping is the most common form of price discrimination in international trade. Definition of Dumping It is a pricing practice in which a firm charges a lower price for an exported good than it does for the same good sold domestically It is a controversial issue in trade policy and is widely regarded as an unfair practice in international trade. Dumping can occur only if two conditions are met: First, the industry must be Imperfectly competitive industry, so that firms set prices rather than taking prices as given. Second, market must be segmented, so that domestic residents cannot easily purchase goods intended for export(transport costs and protectionist trade barriers). A monopolistic firm gets profits by dumping An example below help to show dumping can be a profit-maximizing strategy by Figure 6-8. To maximize profits, the firm must set marginal revenue equal to marginal cost in each market. We assume that the firm can sell as much as it wants at the PFOR in the foreign market. Figure 6-8: Dumping Exports Domestic sales Cost, C and Price, P Quantities produced and demanded, Q MC DFOR = MRFOR MRDOM DDOM 2 PFOR PDOM QDOM QMONOPOLY Total output 1 3 The firm sell QDOM in the domestic market and sell QMONOPOLY - QDOM in the foreign market . The quantity QDOM will be demanded domestically at price of PDOM , which is above the export price P