Encyclopedia has the theory of monopoly advantage. 1. After its emergence in the 1950s, American multinational corporations have been developing rapidly. The limitations of the profit difference theory have been exposed. Therefore, there is an urgent need for a theory with strong explanatory power. Theories emerge. In 1960, American scholar Stephen Hymer took the lead in challenging traditional theories in his doctoral thesis "International Operations of Domestic Enterprises: A Study of Foreign Direct Investment" completed at MIT and first proposed the theory of monopoly advantage. . The theory of monopoly advantage is a supplement and development of the monopoly advantage proposed by Hemmer in the 1970s by C.P. Kindberg of the Massachusetts Institute of Technology. It is a theory that illustrates the monopoly advantages of contemporary multinational companies in overseas investments. This theory holds that when investigating foreign direct investment, we should focus on "monopoly advantage". In view of the fact that both Heimer and Kindleberger made great contributions to the theory, the theory is sometimes called the "Heimer-Kindelberger Tradition" (H-K Tradition). 2. The main idea of ??the Theory of Monopoly Advantage: The imperfection of the market is the fundamental reason for foreign direct investment. At the same time, the monopoly advantage of multinational companies is the condition for profit from foreign direct investment. 1. The market is incomplete. Incompleteness arises from four aspects: (1) The product market is incomplete. This is mainly related to factors such as product specificity, trademarks, special market skills or price alliances; (2) The incomplete market for production factors. This is mainly caused by special management skills, convenience in the capital market, and technical differences protected by the patent system; (3) incomplete markets caused by economies of scale; (4) due to government taxes, tariffs, interest rates, etc. and market imperfections caused by policy reasons such as exchange rates. 2. Monopoly advantage (1) Market monopoly advantage. Such as product performance differences, special sales skills, the ability to control market prices, etc. (2) Production monopoly advantage. Such as business management skills, ability to mobilize funds, and mastered technology patents and proprietary technologies. (3) Advantages of economies of scale. That is, through horizontal integration or vertical integration, efficiency can be improved in the connection of supply, production and marketing. (4) Market entry or exit barriers caused by government taxation, tariffs and other trade restrictions have led multinational companies to take advantage of their monopoly advantages through foreign direct investment. 3. Conclusions of the monopoly advantage theory 1. Reason analysis: Under the conditions of incomplete market in the host country, multinational companies can use their monopoly advantages to exclude free competition and maintain high monopoly prices to obtain excess profits. 2. Conclusion: Foreign direct investment is a behavioral method adopted by oligopolistic enterprises with certain advantages to pursue control of incomplete markets. 4. Explanation of direct investment between different countries 1. Direct investment in developing countries can bypass the tariff barriers of the host country; at the same time, technology and other assets can obtain full benefits. 2. In response to the phenomenon of cross-direct investment oligopoly among developed countries, they set up enterprises in the territory of competitors to restrain each other and strengthen their own capabilities. 5. Supplements to the monopoly advantages of multinational companies 1. Knowledge advantage 2. Product differentiation advantage 3. Scale advantage 4. Management advantage 5. Capital advantage 7. Evaluation 1. Contribution: The theory of monopoly advantage breaks through the direct foreign exchange caused by international capital flows. The traditional trade theoretical framework of investment highlights the important role of knowledge assets and technological advantages in the formation of multinational corporations. Therefore, the theory of monopoly advantage had a profound impact on Western scholars in the mid-1960s and 1970s. ?The theory of monopoly advantage theoretically created a new research field targeting international direct investment, making the theoretical research on international direct investment begin to become an independent discipline. This theory not only explains the horizontal investment made by multinational companies in order to exert their monopoly advantages on a larger scale, but also explains the vertical investment made by multinational companies in order to maintain their monopoly status and transfer some processes, especially labor-intensive processes, to foreign production. Therefore, it has a great influence on the theoretical development of foreign direct investment by multinational companies. 2. Shortcomings: This theory also has some flaws, such as it cannot well explain the industrial distribution or geographical distribution of foreign direct investment flows; it takes the United States as the research object and lacks guiding significance for the foreign direct investment of enterprises in developing countries.
?The monopoly advantage theory scientifically analyzes and explains the conditions and reasons for enterprises’ foreign direct investment.