4 - Patterns of Market Competition

Summary

Among areas of popular concern with the multinational enterprise (MNE), not the least confusion arises over its relationship to monopoly and problems of competition policy. The MNE that attracts attention is a large company holding a large share in at least some of the markets in which it operates. However, properly analyzed, the normative issues raised by monopoly, large size (or diversification), and international ownership are quite different. In this chapter, we investigate the extent and character of the relationships between the MNE and market competition.

Foreign Investment and Oligopoly

Entry Barriers and Bases for Foreign Investment

The transaction-cost analysis of MNEs implies their prevalence in industries with concentrated sellers (Caves, 1971), because the influences giving rise to MNEs are identical to the bases of several barriers to entry into industries, and entry barriers cause high seller concentration. The theory of entry barriers has been controversial at a normative level (Is it socially undesirable that X should shield incumbents' profits from entry?), but there is fairly general agreement about where and how entry barriers limit the number of market occupants, our concern here. These are the types of barriers normally recognized:

1. Advertising outlays are associated with an entry barrier in certain types of industries where advertising dominates the information sought by buyers and its dissemination is subject to scale economies. Advertising is also a good indicator of the prevalence of proprietary and goodwill assets likely to support foreign investment, as we saw in Chapter 1.

2. […]