Multinacional Companies - Ownership Advantages and Internalisation

Abstract: 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 …

…the downward pressure on the price offered by buyers (due to buyer uncertainty), may mean that no mutually acceptable price exists. Thus the minimum price acceptable to the seller may be higher than the maximum the potential buyer will offer. No deal can be made (the market will have failed) and the technology owner again will opt for its internalised use. Refs: BUCKLEY, P., and CASSON., M. (1976) The Future of the Multinational Enterprise. London. MacMillan.