15.2 International Pricing Constraints

When selecting a pricing strategy, organizations must be aware of a number of pricing constraints that exist in international trade. These pricing constraints prevent organizations from having complete flexibility in making pricing decisions.

Anti-Dumping Legislation

Dumping occurs when the price of a product in the international market is lower than the price of that same product in the exporter’s domestic market. In international trade, dumping is viewed as unfair because of the impact it has on local competitors (The Investopedia Team, 2021). Countries around the world have developed legislation preventing foreign firms from engaging in dumping practices. The most common anti-dumping measure that countries use is to impose tariffs and duties on imported goods that are found to be unfairly priced. These tariffs and duties raise the price of imported goods to match or exceed prices offered by the local competition. Companies can afford to use dumping practices with the help of subsidies received from their local governments. One such example is China’s electric vehicles (EV) industries, where manufacturers receive billions of yuan in subsidies so they can sell EVs in Europe and the USA for a low price and take away market share from auto industries in these countries (Kawase, 2023; Winton, 2023).

Resale Price Maintenance

Resale price maintenance applies to sales transactions between affiliated companies and ensures that the transferred prices for goods and services from a company to an affiliated company reflect the true value of those goods and services. Transferred prices are monitored very closely by both domestic and destination countries because this practice enables organizations to avoid taxes by controlling their income by charging too much or too little for transferred products (Umit Kucuk & Timmermans, 2022).

Price Level Reviews

Price level reviews are used by some countries to control excessive increases in prices for the purpose of protecting the economy since an increase in prices causes inflation. Price level review applies to both domestic and international businesses, therefore companies must account for this when deciding to select their pricing strategy (Mahr & Whiting, 2023).

References

The Investopedia Team. (2021, March 24). Dumping: Price discrimination in trade, attitudes and examples. Investopedia. https://www.investopedia.com/terms/d/dumping.asp

Kawase, K. (2023, September 21). China gives EV sector billions of yuan in subsidies. Nikkei Asia. https://asia.nikkei.com/Spotlight/Electric-cars-in-China/China-gives-EV-sector-billions-of-yuan-in-subsidies

Mahr, N. & Whiting, B. (2023, November 21). Price level definition, equation & calculation. Study.com. https://study.com/academy/lesson/price-level-in-economics-definition-equation-quiz.html

Umit Kucuk, S. & Timmermans, H.J.P. (2022, July 6). Resale price maintenance (RPM): The U.S. and E.U. perspectives. ScienceDirect. https://www.sciencedirect.com/science/article/abs/pii/S0969698912000756

Winton, N. (2023, October 29). China’s EV threat sharpens as U.S. and Europe stumble. Forbes. https://www.forbes.com/sites/neilwinton/2023/10/29/chinas-ev-threat-sharpens-as-us-and-europe-stumble/?sh=2a7f95237dd3