Association of Chartered Certified Accountants (ACCA) Certification Practice Test

What is a scenario that demonstrates dumping?

1. Selling products at a premium to gain market share

2. Selling products at a loss

3. Offering substantial discounts to increase demand

4. Charging high prices to recover production costs

The correct answer is: Selling products at a loss

Dumping refers to the practice of selling products in a foreign market at a price that is lower than the price charged in the domestic market, often resulting in a loss. This strategy is typically employed to offload excess inventory or to gain market share in a competitive environment by undercutting local suppliers. When selling products at a loss, a company may aim to establish a foothold in a new market or drive competitors out of business by using low prices that are unsustainable in the long term. This can create an unfair competitive advantage and disrupt local industries, which is why dumping is often subject to trade regulations and tariffs. Other scenarios mentioned illustrate different pricing strategies but do not meet the definition of dumping. Selling products at a premium may help in gaining market share, but it does so by positioning the products as higher quality or luxury items. Offering substantial discounts increases demand but typically does not involve selling below cost in the manner associated with dumping. Charging high prices to recover production costs also does not align with the concept of dumping, as it suggests a focus on profitability rather than market competitive pricing or loss-leading strategies.