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UGF Lecture 3
Management
> Global Firm >
Dunning > Model 1
Model 1 - MNEs cannot exist in perfect competition
MNEs can only exist in the presence of market failures, or
when the market is imperfectly competitive. There are three assumptions
to this model:
- An industry exists in perfect competition in two countries, A
and B. This means that in each national market there are a lots of
small firms using identical technology to sell the same good,
suggesting they charge the same price and face the same costs. Thus
in industry equilibrium (supply = demand) all firms make only
"normal" profits (the minimum they will accept before leaving the
market). As firms in A and B are identical in every way, they exist
in perfect competition and so no OA can exist.
- Although the firms in A and B are the same, some parts of the
institutional environment differ, such as how the labour market
works and the legal system. Hymer argues that there are thus costs
for being "foreign".
- Something, like transport costs or trade constriction policies
completely stops A and B from trading. This is referred to as a
"negative" location advantage
Model 1 - perfect
Model 1 - imperfect
Model 2
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