Friday, April 11, 2014

MSG Dumping

The Wall Street Journal reports that the US is investigating whether China and Indonesia "dumped" MSG into the US.  Dumping occurs when a producer sells at "artificially low prices".  One reason to do so is due to get rid of excess inventories due to domestic under-consumption, and another is that firms are receiving production subsidies that allow the producers to make a profit even at "artificially low prices".

The alternative explanation is that demand is different in the two nations and that firms are engaged in group pricing (or third degree price discrimination).  In this case, firms are maximizing profits while charging lower prices in markets where demand is more price elastic and charging higher prices in markets where demand is more price inelastic.

Likewise prices can be different if the domestic market is structured like a monopoly and the foreign market is structured more competitively - hence prices are different, but for reasons that follow economic incentives.

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