Dumping: What to Do When a Competitor Artificially Lowers Prices

Dumping is when companies deliberately set very low prices for their products or services to attract more customers or push out competitors. Sometimes it’s done to quickly bring in cash or get rid of unsold inventory that isn’t selling well.

How dumping works and why it’s used

The main sign of dumping is when the price drops significantly below market level. For example, if the average price for a coffee in your city is $4, but one place offers it for $1 — that’s clear dumping. Unlike regular discounts, such pricing doesn’t even cover costs.

This can be done for various reasons: to attract customers, eliminate competitors, or simply clear out unsellable stock. It’s an aggressive strategy that can be profitable short-term but often leads to losses or market issues in the long run.

Common reasons for using dumping:

1. Competitive pressure. Imagine two stores in a small town selling the same products. One drastically cuts prices on popular items to lure customers away. The other store can’t match the prices and loses business. Eventually, the first store becomes a monopoly — and raises prices again.

2. Entering new markets. A large foreign company wants a share of a new market. It starts selling goods at very low prices to grab attention. Local businesses can’t keep up and exit the market. The dumping company then raises prices once the competition is gone.

3. Liquidating obsolete stock. For example, an electronics store buys too many old-model TVs that don’t sell. To free up space and recover some money, the store runs a clearance sale, pricing TVs at or below cost. This is also a form of dumping.

4. Economic crisis. During tough times, companies might use dumping to stay afloat. For example, airlines may sell tickets at extremely low prices just to cover basic expenses and retain customers.

Real-world dumping examples

Example 1: Chinese steel. In the early 2000s, China began selling steel on the global market at very low prices. The U.S. and Europe accused Chinese companies of unfair practices — claiming government subsidies allowed them to undercut prices. This hurt local steelmakers. In response, the U.S. and EU imposed high tariffs on Chinese steel — ranging from 63% to 190%.

Example 2: Shrimp from Asia. In 2004, the U.S. noticed that shrimp from Asia was being sold far too cheaply. This harmed American shrimpers, who couldn’t compete. To protect the domestic market, the U.S. imposed import duties ranging from 3% to 27%.

Example 3: Japanese TVs. In the 1980s, Sony was at the center of a scandal when the U.S. government accused the company of selling TVs in America for $180 — while the same models sold for $333 in Japan. Today, Sony isn’t associated with cheap products, and that dumping episode was just a temporary tactic.

How to set reasonable prices — not too low, not too high? Read our article.

Is dumping legal?

Dumping, by itself, is not always illegal in the United States — but there are important legal boundaries. If a company engages in predatory pricing (deliberately undercutting competitors to drive them out of the market), or if unfair trade practices are involved, it may violate antitrust or trade laws.

What does U.S. law say?

In the U.S., anti-dumping and unfair pricing practices are governed by several key laws and regulations:

• The Sherman Antitrust Act prohibits anti-competitive practices, including price-fixing and predatory pricing. If a company lowers prices below cost with the intent to eliminate competitors and later raise prices, it could face legal consequences under this law.

• The Clayton Act strengthens antitrust protections by addressing practices like price discrimination, exclusive dealing, and mergers that may substantially lessen competition.

• The Federal Trade Commission Act prohibits "unfair or deceptive acts or practices" in commerce. If price dumping misleads consumers or harms competition, the FTC may intervene.

• Anti-Dumping Laws under the Tariff Act of 1930 specifically target foreign companies selling products in the U.S. at unfairly low prices. If dumping harms domestic industries, the U.S. can impose anti-dumping duties — special tariffs that raise the import price to a fair level.

If a domestic company suspects a foreign competitor of dumping, it can file a complaint with the ITC or the Department of Commerce. After an investigation, if dumping is confirmed, the government may impose countervailing duties or other trade remedies.

While competitive pricing is legal and expected in a free market, manipulating prices to destroy competition is not. Businesses should ensure their pricing strategies comply with U.S. antitrust and trade laws to avoid investigations, fines, or lawsuits.

How prices are dumped on marketplaces

Dumping is common on marketplaces. Shoppers go there for low prices and fast delivery, while sellers drop prices to beat competition or gain visibility. This is especially visible in high-demand categories (daily goods, clothing, shoes, food).

Undercutting others might seem logical, since buyers often choose the cheapest item. But compromising on quality drops ratings quickly, and bad reviews scare off new customers. Sellers focused only on low prices rarely succeed long term. It’s better to aim for fair pricing — and if a product isn’t profitable, reconsider your product mix.

Instead of lowering prices, it's more effective to attract buyers differently: offer something unique, invest in promotion, include bonuses, and maintain quality.

How do you find what makes your product unique? Read our article.

A well-designed product listing can boost sales dramatically. High-quality photos, clear descriptions, and infographics help show what the customer is paying for. If competition is too intense on one platform, consider other sales channels instead of competing only on price.

It’s important to present your product in a way that explains why it’s worth the cost. Look at how big brands do it — they sell not just a product, but value, through packaging, design, and service. Of course, a small store can’t replicate Apple, but you can apply their principles — highlight your product’s unique features, advantages over competitors, and customer convenience.

What to do if a competitor is dumping prices

You can respond to dumping in different ways depending on how much it affects your business.

Add bonuses. If competitors are cutting prices, offer added value: loyalty programs, gifts, or exclusive terms. This makes your product more appealing.

Lower your price — but plan ahead. If you reduce prices, do it strategically. You might bring in a customer with a cheap item, but then you’ll need to keep them coming back.

Reposition the product. Instead of competing on price, change your messaging. Sometimes buyers are willing to pay more — if they see the value. Your product may be worth more than it seems — you just need to communicate that clearly.

Wait it out. Sometimes the best move is doing nothing. In industries with high costs and few players, sellers operating at a loss will eventually exit. Big companies can maintain low prices thanks to other income sources, but small to mid-sized businesses rely on per-sale profit — so artificially low prices eventually stop being viable.

Types of dumping

Price reductions that hurt profit margins can be split into two types:

1. Selling below cost. This means selling at a price that doesn’t cover production expenses. This approach requires careful planning — otherwise, losses can mount quickly.

2. Lower export prices. Here, the product is sold abroad for more than it cost to produce, but less than similar local items. This helps gain market share overseas.

In short: the first is mostly used domestically, and may involve selling at a loss. The second is common in exports, but still allows for profit.

Conclusion

Dumping is a way to compete by cutting prices, but it doesn’t always pay off. It may quickly grow your customer base, but over time it often leads to losses.

Constant discounts reduce profit and weaken your business. Instead of racing to the bottom, focus on quality, customer experience, and strong marketing. In the end, those who offer real value — not just low prices — are the ones who win.