Abstract:

In the vertical relationship of transnational corporations (TNCs), vertical restraints are important forms of middle transaction in the vertical production and allocation chains.Vertical restraints can be defined as a kind of economic exchange that differs from the standard sale contract observed in perfect competition.The most common vertical restraints deal with the behaviors of firms in different vertical chains, and often set restriction rules with respect to purchase, sell or resell of goods and services.At present, there are three theories of the TNCs' vertical restraints, namely, the theory of inefficiency, the theory of regulation and the theory of incentive vertical integration.The author of this paper argues that these views are either inaccurate or ex parte.He suggests that host-country governments should establish relatively neutral policies and reduce direct interference with ENCs operation.

Key words: transnational corporations (TNCs), host-country governments, behaviours of vertical restraints, policy choices