Dumping occurs when a firm sets a lower price (net of trade costs) on exports than it charges domestically. A consequence of trade costs is that firms will feel competition more intensely on export markets because the firms have smaller market shares in those export markets. This leads firms to reduce markups for their export sales relative to their domestic sales; this behavior is characterized as dumping. Dumping is viewed as an unfair trade practice, but it arises naturally in a model of monopolistic competition and trade costs where firms from both countries behave in the same way. Policies against dumping are often used to discriminate against foreign firms in a market and erect barriers to trade. LO.1