MNEs encounter sunk costs when they face an obsolescing bargain with the host country.

Question

Quizplus · Accepted Answer

Sunk costs are unrecoverable costs that have already been expended on an activity, and are not recoverable if the MNE decides to exit. An obsolescing bargain is a situation where the terms of a contract or agreement between an MNE and a host country change over time, making the original agreement less favorable for the MNE. When this happens, the MNE may face sunk costs if it has already invested significant resources in the host country based on the original agreement. Thus, MNEs do encounter sunk costs when they face an obsolescing bargain with the host country.

MNEs Encounter Sunk Costs When They Face an Obsolescing Bargain