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Dunning (1977)Management > Global Firm > Lectures > Independent Research > Dunning > Market imperfections > OLI - OA > OLI - OA + LA > OLI - I > OLI - I (market failure)
OLI - I (market failure)Structural market failure Hymer emphasised structural market failure. Ownership advantages gain a firm a monopoly on the rents of those assets, resulting from barriers to entry created and maintained by the firm, including the acquisition of competitors, which is arguably a form of internalisation. Transactional market failure continued Transactions market failures include:
These issues occur particularly between countries. MNEs thus tend to internalise to protect themselves from the potential dishonesty and misunderstanding of foreign markets. It may be better to conduct FDI and “do it yourself” than to risk being cheated by the indigenous people, who may prey upon you because you are foreign. Transactional market failure may also occur due to the foreign market being unable to deal with the complexity of the firm’s operations. In addition, the market may be too small to enable economies of scale, even if the price is very elastic. Advantages gained from hierarchical control are known as internalisation advantages. These help to maximize the positive effect of ownership advantages. Internalisation helps to reduce costs, gain control, and minimize risk.
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