The possibility that a company will create a future competitor by charging another company for access to its knowledge is a market imperfection that can encourage foreign direct investment.

Question

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This statement is true. When a company shares its knowledge with another company in exchange for payment, the receiving company may use that knowledge to become a competitor in the future. This creates a market imperfection because the original company may lose its competitive advantage. To avoid this risk, companies may choose to invest directly in the foreign market by establishing their own operations.

The Possibility That a Company Will Create a Future Competitor