The Theory of International Business by Mark Casson

Author:Mark Casson
Language: eng
Format: epub
Publisher: Springer International Publishing, Cham

Marketing in each country is represented by the boxes M1, M2. Marketing distributes product to local consumers, who are represented by the circles C1, C2. Wholesale product can be internationally traded but retail product cannot; this is reflected in the diagonal arrows representing exports and imports, which connect P1 to M2 to P2 to M1; no similar lines connect marketing to consumers.

Solution of the Model

The introduction of development costs and knowledge transfer costs considerably complicates the algebra of the model. The model is still soluble, however. The key is to solve the model in stages. These stages are dictated by the logical structure of the model. At each stage selected variables are determined, conditional on the values of other variables that are determined at later stages.

There are four main stages in the solution. Price and output. Price and output in each market are determined conditional on the location of production from which the market is served, and assuming innovation goes ahead. This includes determining whether to serve any given market or not.

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