Multinacional Companies - Ownership Advantages and Internalisation
The firm uses its Ownership advantages in a foreign country despite having disadvantages versus local firms.
Why not sell the OA (as an intermediate good) to local firms, who can use it better? A local firm does possess its own advantage of being local and therefore may be able to use the OA more effectively in that location. But it is more advantageous not to because the market is inefficient, it is better to INTERNALISE than externalise.
Ownership advantages (OA) confer on the firm power in the market, or a cost advantage that outweighs the extra costs o…
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