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)perfect market
C)international product life cycle
D)market imperfections

Question

Quizplus · Accepted Answer

The given theory is called market imperfections theory. It suggests that market imperfections, such as high transportation costs, communication costs, trade barriers, and lack of local knowledge, can cause transaction costs and reduce efficiency. To overcome these inefficiencies, a company may opt for foreign direct investment to internalize the transaction and ensure greater control, thereby removing the efficiency-reducing aspect. The other options, such as market power, perfect market, and international product life cycle, do not explain the process of internalizing transactions due to market inefficiencies.

The ________ Theory States That When an Aspect of the Market