The possibility that a company will create a future competitor by charging another company for access to its knowledge is a(n)________ that can encourage FDI.
A) ownership advantage
B) internalization advantage
C) market imperfection
D) trade barrier

Question

Quizplus · Accepted Answer

A market imperfection refers to a situation where free market forces are not able to efficiently allocate resources. In this case, the asymmetry of knowledge between two companies leads to a potential advantage for the one with more knowledge, and charging for access to that knowledge creates a market imperfection that encourages foreign direct investment (FDI). This is because the foreign company may need to invest in the knowledge holder's country to gain that knowledge, and once there, it may decide to set up its own operations to compete with the former knowledge holder.

The Possibility That a Company Will Create a Future Competitor