Question

role of market imperfections. what is the role of market imperfection in the creation of oppertunities for the multinational firm?

Answer 1

All real-world markets are theoretically imperfect, and the study of real markets is always complicated by various imperfections. For example, traders in a financial market do not possess perfect or even identical knowledge about financial products. The traders and assets in a financial market are not perfectly homogeneous. New information is not instantaneously transmitted to all actors, and there does not exist an infinite velocity of reactions thereafter. Economists only use perfect competition models to think through the implications of economic activity.

The moniker "imperfect market" is somewhat misleading. Lay readers may mistakenly assume an imperfect market is deeply flawed or undesirable, but this is not necessarily true. The range of market imperfections is as wide as the range of all real-world markets; some are much more or much less efficient than others.

Not all market imperfections are harmless or natural. Situations can arise in which too few sellers control too much of a single market, or when prices fail to adequately adjust to material changes in market conditions. It is from these instances that the majority of economic debate originates.

Some economists argue that any deviation from perfect competition models justifies government intervention to promote increased efficiency in production or distribution. Such interventions may come in the form of monetary policy, fiscal policy or market regulation. One common example of such interventionism is anti-trust law, which is explicitly derived from perfect competition theory.

Other economists argue that government intervention might be necessary to correct imperfect markets, but not always. This is because governments are also imperfect, and government actors may not possess the correct incentives or information to interfere correctly. Finally, many economists argue government intervention is rarely, if ever, justified in markets. The Austrian and Chicago schools notably blame many market imperfections on erroneous government intervention

Role of market imperfection

MNEs strive to take advantage of imperfections in national markets for products, factors of production, and financial assets.

• Imperfections in the market for products translate into market opportunities for MNEs. Large international firms are better able to exploit such competitive factors as economies of scale, managerial and technological expertise, product differentiation, and financial strength than their local competitors are.

• MNEs thrive best in markets characterized by international oligopolistic competition, where these factors are particularly critical.

• Once MNEs have established a physical presence abroad, they are in a better position than purely domestic firms are to identify and implement market opportunities through their own internal information network.