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Internalization Revisited

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Author Info
George Norman
Abstract

This paper analyses how a firm chooses between direct ownership and licensing or franchising contracts in supplying distant markets. When contracts are incomplete we show that this choice must balance the moral hazard associated with appointing external agents against that associated with employing internal managers. We show that licensing contracts are preferred when the outside agent has limited opportunities for changing product technology or if there are few spillover effects from the licensee's market to the licensor's home market. Internalization is preferred when the advantages of the 357254201rm are knowledge-based and when reputational effects are strong.

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Publisher Info
Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

Volume (Year): 165 (2009)
Issue (Month): 1 (March)
Pages: 121-133
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Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200903)165:1_121:ir_2.0.tx_2-8

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Find related papers by JEL classification:
D86 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Economics of Contract Law
F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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This page was last updated on 2009-12-10.

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