This phenomenon of two-way dumping may also be termed Reciprocal Dumping. This type was first given due prominence by James Brander’ in 1981.
Brander elaborated a theoretical case of two-way dumping of an undifferentiated product. Factually, however, two-way dumping is widely prevalent in differentiated products and should be recognised for what it is.
Elaborating further, let us start with the conventional case of two countries, each having a domestic monopoly in item G, and with usual simplifying assumptions of identical cost and demand-functions of both monopolies.
This would result in identical prices of G in both countries with no trade in G between them. It can be shown that [assuming zero transport cost] that if home-country firm dumps, it can add to its profit by raiding the foreign- country firm’s market.
However, if the foreign-country firm also dumps, the result will be an emergence of two-way trade even though there is no initial difference in the price of the dumped item in the two markets.
It should, however, be noted that reciprocal dumping cannot be sustained under constant or diminishing returns. In contrast, under economies of scale, both countries can gain and trade is sustainable.
2. Sporadic Dumping:
It is occasional dumping of a product whereby the seller wants to get rid of surplus stocks or wants to dispose of stock of an older technology item which is being replaced by a newer technology one. It is not aimed at competing rivals right out of the market or capturing the market permanently.
3. Predatory Dumping:
This is also a temporary type of dumping. However, as suggested by its name, its purpose is to kill the competition and capture the market by inflicting heavy losses on the competing firms.
This type of dumping carries with it the risk of dragging on for a period longer than planned and, therefore, can be undertaken only by firms with huge resources.
Alternatively, it may be undertaken with the help of the government or by a state trading agency etc. Generally, predatory dumping is expected to be followed by an increase in the sale price of the product so as to recover the earlier cost of dumping. In this type of dumping, there is a risk of retaliatory action also.