Alimusayev Emin Nazim,
Master student of Baku State University, faculty of Law, specialization
of International Economic Law
E-mail: [email protected]
Basic economic theory demonstrates that when firms have to compete for customers, it leads to lower prices, higher quality goods and services, greater variety and more innovation. In an economy without adequate competition, prices and corporate profits rise, which means large corporations gain wealth, while consumers and workers pay the cost [8]. Therefore, the necessity of the competition in a capitalist economy is undeniable. Competition affects the market in two ways:
- The first is through incentives: encouraging improvements in technology, organisation and effort on the part of existing establishments and firms.
- The second is through selection: replacing less-productive with more productive establishments and firms, whether smoothly via the transfer of market shares from less to more productive firms, or roughly through the exit of some firms and the entry of others [1, s. 1-2].
Even though lower prices are one of the main purposes of market competition, in some cases it may be harmful for the market. When firms use price reductions to gain market share by driving other firms out of market, low prices become harmful for the market. Such practices may be conducted by both foreign firms and domestic companies. When low prices are about global trade, more specifically when a firm of one country, sets export price too low to gain the market share of another country, it may be harmful and can cause injury to the domestic industry of importing country. However, it is not the only case in which low prices can be harmful for the market. In some cases, companies set prices unrealistically low to drive other firms out of the market and once that happens, they set high monopoly prices. In first scenario, such practices are called dumping and in the second scenario called predatory pricing. As both scenarios seem very similar, there are crucial differences between dumping and predatory pricing.
When a country choses free market as its economic policy, it is necessary to make laws to ensure that the market functions properly. A central concern of competition law is that a firm or firms can harm competition and inflict harm on consumers [2, s. 3]. Therefore, almost all countries have competition laws and increasing number of countries have adopted anti-dumping regulations. Competition laws prohibit anti-competitive practices by companies to preserve competition in the market. In some cases, companies which conducted anti-competitive practices are punished. Anti-dumping regulations define the concept of dumping and the measures to impose when dumping causes injury or threatens to cause injury to the domestic industry of importing country.