Editing Internationalization (section)

=== Market imperfection theory <small>''(Stephen Hymer, 1976 & Charles P. Kindleberger, 1969 & Richard E. Caves, 1971)''</small> ===
{{Main|Market failure|Stephen Hymer|Charles P. Kindleberger|Richard E. Caves}}
In economics, a market failure is a situation wherein the allocation of [[Production (economics)|production]] or use of [[goods and services]] by the [[free market]] is not [[Efficiency (economics)|efficient]]. Market failures can be viewed as scenarios where individuals' pursuit of pure self-interest leads to results that can be improved upon from the societal point of view.<ref name="krugman">Krugman, Paul, Wells, Robin, ''Economics'', Worth Publishers, New York, (2006)</ref> The first known use of the term by economists was in 1958,<ref name="Bator">{{cite journal |last= Bator |first= Francis M. |title= The Anatomy of Market Failure |journal= The Quarterly Journal of Economics |volume= 72 |date=August 1958 |pages= 351–379 |doi= 10.2307/1882231 |jstor= 1882231 |issue= 3 |publisher= The MIT Press}}</ref> but the concept has been traced back to the Victorian philosopher [[Henry Sidgwick]].<ref name="Medema">{{cite web |url= http://www.utilitarian.net/sidgwick/about/2004070102.pdf |title= Mill, Sidgwick, and the Evolution of the Theory of Market Failure |access-date= 2007-06-23 |last= Medema |first= Steven G. |date= July 2004 |archive-date= 2007-09-27 |archive-url= https://web.archive.org/web/20070927021943/http://www.utilitarian.net/sidgwick/about/2004070102.pdf |url-status= dead }}</ref>

Market imperfection can be defined as anything that interferes with trade.<ref name="degennaro">{{cite web |url= http://www.frbatlanta.org/filelegacydocs/wp0512.pdf |title= Market Imperfections |access-date= 2009-03-17 |last= DeGennaro |first= Ramon P. |date= December 2005 |work= Working Paper |publisher= Federal Reserve Bank of Atlanta - Working Paper Series |archive-url= https://web.archive.org/web/20100401014940/http://www.frbatlanta.org/filelegacydocs/wp0512.pdf |archive-date= 2010-04-01 |url-status= dead }}</ref> This includes two dimensions of imperfections.<ref name="degennaro" /> First, imperfections cause a rational market participant to deviate from holding the market portfolio.<ref name="degennaro" /> Second, imperfections cause a rational market participant to deviate from his preferred risk level.<ref name="degennaro" /> Market imperfections generate costs which interfere with trades that rational individuals make (or would make in the absence of the imperfection).<ref name="degennaro" />

The idea that [[multinational corporation]]s (MNEs) owe their existence to market imperfections was first put forward by [[Stephen Hymer]], [[Charles P. Kindleberger]] and Caves.<ref name="pitelis1">{{cite book |others= [[Stephen Hymer|Hymer]] (1960, published in 1976), [[Charles P. Kindleberger|Kindleberger]] (1969) & Caves (1971) |title= The nature of the transnational firm |last= Pitelis |first= Christos |author2=Roger Sugden |year= 2000 |publisher= Routledge |isbn= 0-415-16787-6 |page= 74 |url= https://books.google.com/books?id=mXjeiQYR088C}}</ref> The market imperfections they had in mind were, however, ''structural'' imperfections in markets for final products.<ref name="pitelis" />

According to Hymer, market imperfections are structural, arising from structural deviations from perfect competition in the final product market due to exclusive and permanent control of proprietary technology, privileged access to inputs, scale economies, control of distribution systems, and product differentiation,<ref name="pitelis4">{{cite book |others= [[Joe S. Bain|Bain]] (1956) |title= The nature of the transnational firm |last= Pitelis |first= Christos |author2=Roger Sugden |year= 2000 |publisher= Routledge |isbn= 0-415-16787-6 |page= 74 |url= https://books.google.com/books?id=mXjeiQYR088C}}</ref> but in their absence markets are perfectly efficient.<ref name="pitelis">{{cite book |title= The nature of the transnational firm |last= Pitelis |first= Christos |author2=Roger Sugden |year= 2000 |publisher= Routledge |isbn= 0-415-16787-6 |pages= 224 |url= https://books.google.com/books?id=mXjeiQYR088C}}</ref>

By contrast, the insight of transaction costs theories of the MNEs, simultaneously and independently developed in the 1970s by McManus (1972), Buckley and Casson (1976), Brown (1976) and Hennart (1977, 1982), is that ''market imperfections'' are inherent attributes of markets, and MNEs are institutions to bypass these imperfections.<ref name="pitelis" /> Markets experience natural imperfections, i.e. imperfections that are because the implicit neoclassical assumptions of perfect knowledge and perfect enforcement are not realized.<ref name="pitelis5">{{cite book |others= [[John Harry Dunning|Dunning]] & Rugman (1985), Teece (1981) |title= The nature of the transnational firm |last= Pitelis |first= Christos |author2=Roger Sugden |year= 2000 |publisher= Routledge |isbn= 0-415-16787-6 |page= 74 |url= https://books.google.com/books?id=mXjeiQYR088C}}</ref>