The ________ theory states that when an aspect of the market makes a transaction less efficient than it could be,a company will undertake foreign direct investment to internalize the transaction and thereby remove the efficiency-reducing aspect.
A) market power
B) eclectic
C) international product life cycle
D) market imperfections

Question

Quizplus · Accepted Answer

The theory described in the question is known as the market imperfections theory. This theory suggests that when there are imperfections or inefficiencies in the market, such as high transaction costs, a company may prefer to directly invest in a foreign market rather than engage in market transactions. This allows the company to internalize the transaction and thereby remove the efficiency-reducing aspect. The other options listed (market power, eclectic, and international product life cycle) do not specifically address this issue of market imperfections.

The ________ Theory States That When an Aspect of the Market